HD 9756 
.N3 
1916 
Copy 1 



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BEFORE 

THE FEDERAL TRADE 
COMMISSION 

BRIEF 

ON BEHALF OF 

The National Lumber 

Manufacturers Association 



JOSEPH N. TEAL 
L.C.BOYLE 
ROGERS MACVEAGH 

COUNSEL 



WASHINGTON, D. C. 
JANUARY, 1916 



,^ J BEFORE 

THE FEDERAL TRADE 
COMMISSION 

BRIEF 

On Behalf of 

The National Lumber Manufacturers 
Association 



JOSEPH N. TEAL 
L. C. BOYLE 
ROGERS MAC VEAGH 

Counsel 



WASHINGTON, D. C. 

JANUARY, 1916 



PUBLISHED BY THE NATIONAL LUMBER MANUFACTURERS 
ASSOCIATION, R. S. KELLOGG, SECRETARY, CHICAGO, ILL. 



^i. 



«\ 



D. Of D, 



X 



CONTENTS 

I 

INTRODUCTION 

PAGE 

Statement 1 

General Facts 3 



II 

DEVELOPMENT OF THE INDUSTRY 
AND PREVAILING CONDITIONS 

PAGE 

The Issue 5 

General Survey 

Importance in Pacific Northwest 8 

(1) In General 8 

(2) General Statistics — Census of 1910 . 9 

(3) Statistics — Idaho, Washi7igton, and Oregon. . . 9 

Early Mill Operations in th£ Northwest 13 

Railroad Development in the Northwest 14 

Distance from Markets 16 

National Forests 16 

Location of Timber 17 

Canadian Competition 17 

The Export Trade 17 

Growth of Business 18 

Public Interest 18 

Future Development of the Industry 19 



IV 



Particular Situations 

Domestic page 

(1) Special Difficulties 22 

(2) Prices 25 

(3) Cost of Production 

(a) In general 26 

(b) Selling Prices 30 

(c) Investment 31 

(d) Summary of Tables " 32 

(e) Confirmation of Price Movement 33 

(f) The Spokane Hearing 34 

(g) The California Conditions 38 

(h) Yellow Pine 40 

(i) Hemlock 41 

( j ) Conclusion . 41 

(4) The Shingle Industry 

(a) Introduction 43 

(b) History and Present Conditions 44 

(c) Competition — Substitutes and Canada. 51 

(d) Pricesi 52 

(e) Cost of Manufacture 55 

(f) "Wages 58 

(g) Quality of Product . 60 

(h) Import Statistics 62 

(i) Summary . 63 

(5) Matters More or Less Under the Control of the 

Manufacturer and Inherent iu) the 
Industry 

(a) Introduction 65 

(b) Number of Mills — Production — Con- 

sumption 65 

(c) Capacity of Mills 67 

(d) Largest Lumber Producing States 68 

(e) Small Mills 69 

(f) Relative Output of Mills .' 70 

(g) Kinds of Woods 70 

(h) Overproduction — Effect 71 

(i) Forced Cutting 73 

(j) Prices 75 



PAGE 

(k) Use Not Impaired by Prices 75 

(1) Cost of Manufacturing. . 76 

(m) Timber Supply 77 

(n) Future Prices 78 

(o) Substitutes — Their Effect on Use and 

Price of Lumber 79 

(p) Changes in Character of Output 86 

(q) Under Use — Fair Return 87 

(r) How Increased Use, Elimination of 
Waste, and a Fair Return May Be 

Secured 88 

(s) Distribution 91 

(t) General Suggestions 91 

(u) Association Work. . 92 

(v) Large Units , 93 

(w) Suggested Remedies Within the Indus- 
try 95 

(6) Taxation 96 

(7) National Forests 

(a) History and Importance 102 

(b) The National Forest Policy 104 

(8) Our Domestic Marine 

(a') In General 110 

(b) Difference Between Ship Charters from 

British Columbia and those from 
Pacific Coast Ports to Atlantic Ports 112 

(c) The Panama Canal 116 

(d) Relief Suggested 118 

(e) Results 119 

Canadian — British Columbia 

(1) Forest Policy 120 

(2) Timber Supply 123 

(3) Tenure 

(a) Three Main Forms 124 

(b) Acquisition of Forest Lands. 126 

(I) Crown Grants 126 

(II) Leases 127 

(III) Special Timber Licences 128 



VI 



PAGE 

(4) Export Tax and Tariff 

(a) Export Tax 130 

(b) Tariff 130 

(5) Eail and "Water Rates 131 

(6) Labor Conditions and Mill Supplies 132 

The Export Trade 

(1) Introduction 132 

(2) Distribution and Volume 134 

(3) Kinds of Lumber Exported 135 

(4) Present State of the Trade 136 

(5) Foreign Competitive Conditions 163 

(6) Combinations by American Exporters 175 

(a) Scope of Inquiry 175 

(b) The Legality of Combinations Confined 

Solely to Export Business 176 

(c) Are Such Combinations Desirable or 

Necessary in the Promotion of For- 
eign Trade ? 184 

(d) Is Such Combination Necessary for the 

Development of the Export Lumber 
Business ? 201 

(7) Estimated Effect on Domestic Situation of In- 

creased Export Trade 202 

(8) Inspection and Grading 207 

(9) Importance of an American Merchant Marine 209 

Influence of Standing Timber Exigencies 215 

History and Purposes of the Legislation 

(1) In General 216 

(2) President's Message of January 20, 1914 217 

(3) Discussion at Meeting of Chamber of Com- 

merce of the United States, Washington, 

D. C, February 17, 1914 218 

(4) Introduction of Bills in Congress. . 219 

(5) Unfair Methods of Competition, Extracts from 

Committee 's Reports — Comments 220 

(6) President's Address of February 3, 1915 223 



Vll 

PAGE 

(7) Address of Mr. Joseph E. Davies, February 

15, 1915 224 

(8) Statement of Mr. Edward N. Hurley 225 

(9) Purpose of Act 225 

(10) Powers of Commission 227 

(11) Operation of Law 228 

(12) Action the Commission May Take 229 

(13) Facts 230 

(14) Questions .233 

(15) Suggestions 234 

(16) Summary 237 

Appendix A 

Composite Statement of the Cost of Manufacturing 

Lumber 241 

Appendix B 

Selling Costs 247 



BEFORE 

THE FEDERAL TRADE COMMISSION 
THE LUMBER INDUSTRY 

1. 

INTRODUCTION. 

Statement. 
During the past year the Federal Trade Commission 
has held extended hearings throughout the United States, 
touching the lumber industry in all its phases. Every 
opportunity was given those interested to present the 
facts. It required no proof to show the perfectly obvious 
fact that the industry generally was in an unsatisfactory 
condition; and throughout all the hearings there was 
plainly perceptible an undercurrent of opinion that, while 
there might be intermittent periods of better prices and 
satisfactory business, nevertheless the industry rested on 
an insecure foundation. Something was radically wrong- 
when, in an industry of such magnitude, the business gen- 
erally was not of a more stable character. Suggestions 
were invited and expressed as to what might be done to 
remedy the situation. Considerable diversity of opinion 
exists as to what the Commission can affirmatively do. 
There is, however, on the part of those connected with 
the industry, but one opinion as to the Commission's atti- 
tude. All feel that the Commission desires to encourage 
in every proper way possible the commerce and industry 
of this country. Consequently the representatives of the 
lumber industry frankly laid before the Commission the 
facts as they saw them, feeling sure that, even if no other 
result followed, their efforts would serve to give the pub- 
lic a better idea not only of the magnitude of the industry, 

1 



but also of the extent to whicli its operations affect busi- 
ness througbout tbe country. 

We submit that tbe operations of a business, nation- 
wide in extent, directly employing hundreds of thousands 
of workers, requiring millions of capital, dealing in a 
necessary of life which is procured from a natural and 
not easily reproducible source, may become charged with 
a public interest. It is on this basis and under this prin- 
ciple that those representing the industry are submitting 
their cause to the Commission. They believe that, as 
stewards and, in a measure, trustees of a great responsi- 
bility, they are entitled to all the assistance which the 
government can rightfully give, through either the execu- 
tive, the legislative, or the administrative departments. 

This is the situation presented: the third greatest in- 
dustry in this country has for a number of years past 
been slowly getting into worse condition, until now, to 
put it plainly, it is on its back — this, too, in spite of every 
effort in the practice of better methods and economies in 
operation. It is plain that advances in price, while tem- 
porarily altering conditions, afford no solution unless 
they are permanent. It is but the merest truism to say 
that any legitimate industry should pay a fair profit. 
That it should operate at a loss is not only unnatural and 
uneconomic, but it does not even benefit the public. The 
public as a whole can only prosper as the units making 
that public prosper, and we have no patience with any 
theory that counts as gains, losses by others in the con- 
duct of legitimate business enterprises. 

In seeking to maintain any industry that is not return- 
ing profits, wages and salaries are generally the first item 
of cost to receive consideration. This is peculiarly true 
in the lumber industry, for not only are wages and sal- 
aries by far the largest element of cost, but they are about 
the only factors even measurably under the control of 
the operator. Rent is usually a small item; and taxes, 
prices of supplies, etc., are not under the operator's con- 
trol. The wage earners are therefore quite as much in- 



terested in the successful operation of the business as is 
the owner. The effect of depression in the lumber in- 
dustry on other business and occupations is obvious. We 
are thus brought face to face with issues which, although 
in themselves they may seem simply to involve the con- 
duct of an industry, are in reality questions of the grav- 
est importance and of world-wide significance. These 
the Federal Trade Commission must meet, and in the 
solution of them social as well as economic principles 
must be largely dealt with. 

Only such statistics as are necessary will be printed in 
this brief. Detailed information cbvering all branches 
of the subject is in the hands of the Commission, and our 
purpose is to summarize the whole situation fairly, not 
from the viewpoint of the lumberman only, nor yet from 
that of the consumer, but keeping steadily in mind the 
interest which the whole country has in the question, both 
for the present and for the future. Our purpose will be 
fulfilled if we can in any way assist this Commission in 
its unprecedented task of constructive work. The Com- 
mission is in a measure entering upon unmapped coun- 
try, and the business man — ^yes, and the entire country — 
is looking to it to blaze a way that will lead to a solution 
of many of the difficulties under which business and in- 
dustry have labored in the past. 

General Facts. 

The following statement, condensed from the evidence 
submitted at the various hearings, will, we believe, be ac- 
cepted as accurate : 

First: The lumber business constitutes one of the 
great industries of this country, and deals with and is 
founded on the care and disposition of a natural product 
of common use, the reproduction of which is a slow and 
costly process. 

Second: In the three northwest states of Idaho, 
Washington, and Oregon it is the dominant industry, and 
the same is true of northern California. 



Third: A large number of people are directly depend- 
ent on the industry for their livelihood. 

Fourth: The conservation of a great natural resource 
of common use is intimately connected with the business. 

Fifth: Now and for some time past the industry is 
and has been in a depressed condition. 

Sixth: During this de'pression the manufactured prod- 
uct has been sold to the trade by the manufacturers at 
or about the cost line and in many cases at an actual loss. 

Seventh: Consumption of the product is and for the 
past three years has been decreasing. 



II. 

DEVELOPMENT OF THE INDUSTRY AND PRE- 
VAILING CONDITIONS. 

The Issue. 

The orderly course of procedure in a trial before a 
court or a hearing before a commission is briefly to state 
the issue. Usually there are parties representing adverse 
interests whose differing views as to law or fact make 
this easy of definition. Such is not the case in this in- 
stance; for while we are representing the lumber indus- 
try, if we are doing our duty, we are representing it not 
to advance its peculiar interest or to secure some advan- 
tage personal to it, but for the purpose of developing fun- 
damental facts, ascertaining the truth, and, when that is 
ascertained, determining what, if any, remedies may be 
applied by the individual or by governmental agencies 
to relieve the situation as it may be found to exist. This 
we apprehend is what the Commission is also undertaking 
to do. 

On November 21, 1914, the ^^ American Lumberman" 
published a statement by Chief Forester Graves respect- 
ing an investigation of the lumber industry about to be 
undertaken by the Forest Service. From this statement 
we take the following excerpts : 

' ' There is no use denying the fact that the lumber 
industry is depressed. Now, it must certainly be 
harmful to the public to have a great industry like 
this in a state of depression and yet there must be 
some reason for it. Before there can be any im- 
provement it seems to me that the reason must be 
discovered and when it is discovered — that is to 
say, when all the facts have been brought together — 
then it remains to be seen if the Government, Avhich 
is an impartial public agency, can not suggest a 
remedy. * * * 

5 



^^But all these questions merge again into the 
greater question of conservation. It is a fact that 
I do not believe can be controverted that there is 
more waste in cutting timber today than there has 
been for years. There is too much good material 
being left in the woods, too much being burned. This 
is a very vital question, for it affects the supply of 
timber that, unless it is conserved and made to re- 
place itself, will before long be exhausted and then a 
century will be required to replace it. 

''But, with depressed business, with i3rice cutting, 
with a general scramble to sell lumber to meet the 
carrying charges, things can not be otherwise, and 
that is a good reason for the Forest Service under- 
taking this inquiry into the cause for the depression 
and to seek a remedy for it. ' ' 

There can be no question but that Mr. Graves ac- 
curately described the condition of the industry. In ad- 
dition to the depression it has been laboring under, it has 
also for some time been the subject of more or less criti- 
cism and attack, which has to a considerable degree cre- 
ated an unfavorable impression towards the business gen- 
erally. 

The manufacture of lumber is usually carried on in the 
more remote sections. The manufacturers rarely come 
in contact with the consumers of lumber, and quite often 
do not even deal directly with those who handle their 
products. These facts have led to many misconceptions 
as to the industry and its operations, and the part the 
manufacturer plays in it, and has also led to many unjust 
criticisms, arising out of a misunderstanding of the true 
facts. It is doubtful if any manufacturing activity in this 
country will show over any considerable period profits as 
uniformly meager as will the manufacture of lumber. 
Those representing the industry have endeavored to aid 
the Commission in this investigation. Their books of 
account have been thro^vn open, and the desired informa- 
tion has been given freely. In addition, the Forest Ser- 
vice and other governmental agencies have been conduct- 
ing in their own way an examination of the facts and an 



inquiry into the business, so that it can be safely assumed 
that when the final reports are in and are sifted and an- 
alyzed the Commission will be in possession of all per- 
tinent facts. 

It would seem that the issues, if they may be so termed, 
can be reduced to three main points, and the ultimate 
question to one, although necessarily collateral questions 
are involved. 

I. 

Is there a lumber '^ trust," in the common acceptation 
of the word, amongst or composed of the lumber manu- 
facturers of the United States? and, in connection with 
this question, is the lumber industry being conducted in 
a manner which is harmful to the consumer of the product 
or to the public generally! 

II. 

Is the lumber industry now, and has it been for a con- 
siderable time in the past, from a business standpoint, in 
a sound and healthy state? or, to put it another way, is 
the business in the condition in which an important indus- 
trial factor in this country should be! 

III. 

If it is not, what is the cause, or what are the causes 
of the state or condition found to exist! 

IV. 

What may be done through individual effort or gov- 
ernmental agencies to remedy the situation found to 
exist! 

It is to a consideration of these questions that we will 
now address ourselves, deeply conscious of the responsi- 
bility as well as of the difficulty of doing justice to a sub- 
ject covering so many matters of vital concern and con- 
sequence not only to the individual but to the nation as 
well. We will, however, feel that our work has not been 
fruitless if it shall lighten to some extent the labor of the 
Commission and aid in solving a most difficult problem. 



GENEEAL SURVEY. 

Impoetance in Pacific Nokthwest. 

(1) In General. 
Before proceeding with more detailed statements re- 
specting the lumbering industry in the above named 
states, a general review of the situation may be useful. 
In 1910, according to Bureau of Corporation estimates, 
Idaho had within its borders about 129 billion feet of 
standing timber; "Washington 391 billion feet; and Ore- 
gon 545 billion feet. This represents about 37% of the 
standing timber of the United States. Of this amount it 
is estimated that 70% is owned by individuals or corpora- 
tions, and 27% is in the hands and under the control of 
the Federal Government. The states each own more or 
less, but the percentage is trifling compared to the Fed- 
eral Government's. This large government ownership, 
its purpose, and its future disposition will hereafter be 
considered. The area of the three states named is about 
250,000 square miles, greater than that of the German 
Empire, and the operations of the industry under review 
affect in a greater or less degree the business and welfare 
of the entire section. The magnitude and importance of 
the industry in general throughout the United States are 
within the knowledge of the Commission. In men em- 
ployed, capital invested, and output, it ranks first, sec- 
ond and third amongst the industries. While this fact 
is significant from the standpoint of the nation at large, 
it is, of course, of much greater consequence to the people 
of these three states, considering the relation borne by 
the lumber industry to the other industries in the same 
territory. 



9 

(2) General Statistics — Census of 1910. 

The census of 1910 reveals the following facts with 
respect to the lumber industry of the United States : 

Employed in industry 784,989 

Value of product. $1,156,129,000 

Capital invested $1,176,675,000 

Railway tonnage, lumber and other for- 
est products 193,239,733 

Of those engaged in the industry 695,000 are wage 
earners, 41,000 salaried employees, and the rest pro- 
prietors. The average annual wage at the time of the 
1910 census was $457 per annum; the average annual 
salary $1,158. In the number of wage earners employed 
the lumber industry stands first ; in capital invested, sec- 
ond; in value of products, third — being exceeded in this 
last regard only by the meat industry and the manufac- 
ture of foundry and machine products ; and only products 
of mines furnish more tonnage to railroads. 

In 1910, according to the estimate of the Bureau of Cor- 
porations (^'The Lumber Industry,'' Part I, p. 6), there 
were standing in the United States 2,826,000,000,000 
board feet of saw timber, estimated at a stumpage value 
of six billion dollars. Of this vast quantity 2,197,000,- 
000,000 feet are privately owned and 629,000,000,000 feet, 
or one-fifth of the total stand are owned by the Federal 
Government. This timber covers 200 million acres, rep- 
resenting one-tenth of the total land area of the United 
States. The magnitude of these figures is in itself an in- 
dication not only of the importance, from both an indus- 
trial and a social aspect, of the question under considera- 
tion, but also of the enormity of the task the Commission 
must face if the problem (for it is a problem) is to be 
successfully solved. 

(3) Statistics — Idaho, Washington, and Oregon. 

Turning now from the statistics for the whole United 
States, it is of interest to note the great importance of 



10 

this industry to the three northwest states. We have 
already said that the standing timber in them is estimated 
at 1,065 billion feet, and represents 37% of the standing 
timber of the United States. It covers roughly 50% of 
the total area in each of these states. According to the 
statement submitted by Mr. H. D. Langille at the Tacoma 
hearing (Eec, p. 36), it appears that the lumber cut of 
Oregon and Washington in 1913 was 6,690,500 M feet or 
17.4% of the cut of the United States; that 3.8% of the 
total population of the United States was directly depend- 
ent on the lumber industry, while the corresponding per- 
centage in Washington is 18.7 and Oregon 11.1. 

The following tabulation was submitted by Mr. Lan- 
gille. It speaks for itself : 

COMPAEISOX OF THE LuMBEE InDUSTKY WITH AlL OtHEE 

Iis^DusTEiES Combined. 
State of Washington. 

Total number of wage earners in all industries 69,120 
Total number of wage earners in the lumber 

industry 43,749 

Per cent of all wage earners employed in the 

lumber industry . 63.3% 

Amount of wages paid wage earners in all in- 
dustries annually $49,776,000 

Amount of w^ages paid wage earners in lumber 
industry annually 31,327,000 

Per cent of all wages paid wage earners in the 

lumber industry 62.9% 

Salaries paid to employees of all industries 
annually . .$ 9,827,000 

Salaries paid to employees of the lumbering 
industry annually 3,615,000 

Per cent of salaries paid employees of lumber 

industry 27.2% 

Total amount paid out for services by the in- 
dustries of the state annuallv: 

Bv all industries *. $59,603,000 

By the lumber industry 34,942,000 

Per cent furnished by the lumber industry 58.6% 



11 

State of Oregon. 

Total number of wage earners in all industries 28,750 
Total number of wage earners in the lumber 

industry 15,066 

Per cent of all wage earners employed in the 

lumber industry 52.4% 

Amount of wages paid wage earners in all in- 
dustries annually $19,902,000 

Amount of wages paid wage earners in lumber 

industry annually 10,172,000 

Per cent of all wages paid wage earners in the 
lumber industry 51.1% 

Salaries paid to employees of all industries 
annually . $ 4,047,000 

Salaries paid to employees of lumber industry 
annually 1,267,000 

Per cent of salaries paid employees of lumber 
industry 31.3% 

Total amount paid out for services by the in- 
dustries of the state annually: 

By all industries $23,949,000 

By the lumber industry 11,429,000 

Per cent furnished by the lumber industry 47.7% 

State of Idaho. 

Total number of wage earners in all industries 8,220 

Total number of wage earners in the lumber 

industry 5,212 

Per cent of all wage earners employed in the 

lumber industry .• • • • 63.4% 

Amount of wages paid wage earners in all in- 
dustries annually $5,498,000 

Amount of wages paid wage earners in lumber 

industry annually 3,382,000 

Per cent of all wages paid wage earners in the 
lumber industry 61.5% 

Salaries paid to employees of all industries 
annually $ 984,000 

Salaries paid to employees of the lumber in- 
dustry annually 459,000 

Per cent of salaries paid employees of lumber 

industry 46.6% 



12 

Total amount paid out for services by the in- 
dustries of tlie state annually: 

By all industries $6,842,000 

By the lumber industry 3,841,000 

Per cent furnished by the lumber industry 59.3% 

The value of the lumber and timber products of Oregon, 
Washington and Idaho for the year 1910 was $30,200,000 
in Oregon, $89,155,000 in Washington and $10,689,310 in 
Idaho, or a grand total for the three states of $130,053,- 
310. A conservative estimate made by the Forest Service 
shows that under normal conditions (1913) the total an- 
nual timber cut of the state of Washington is about four 
billion board feet per annum, and over three-quarters of 
a billion feet goes into shingles. The annual timber cut 
in the State of Oregon on the same basis is 1,750,000,000 
feet B. M. ('^West Coast Lumberman," Feb. 15, 1914,— 
H. B. Oakleaf of the Forest Service) and of Idaho is 
650,000,000. 

To summarize, about 63% of all wage earners in the 
state of Washington are employed in the lumber indus- 
try, and it pays about the same per cent of the total 
wages. In Oregon the per cent of wage earners employed 
is about 52; in Idaho, 60. Figures which we believe to 
be accurate show in the three northwestern states about 
100,000 wage earners in all industries, of which about 
64,000 are employed in the lumber industry. The total 
annual value of all products is about $336,000,000; lum- 
ber and products of lumber $130,000,000. In capital in- 
vested, men employed, value of output, and taxes paid, no 
industry is comparable to that of lumbering. The effect 
of its operation, successful or otherwise, is far reaching. 
The farmer, the mechanic, the laborer, the merchant, the 
banker, alike feel the baleful effect of its depression and 
share in its prosperity. In many sections of the Pacific 
coast the logging camp and the saw mill are directly re- 
sponsi])le for the growth and development of adjacent ter- 
ritory, not only agriculturally, but otherwise. Many a 
school is maintained throughout the timbered country, 



13 

and many a road built, which would not be in existence 
were it not for this industry. Many very considerable 
towns are absolutely dependent on it both for their pres- 
ent existence and for their continued growth and develop- 
ment. Agriculture in many sections follows the mills; 
and the future development of the northwest will be 
largely affected by their prosperity or adversity. There- 
fore, in considering this question, we are not dealing 
solely with the lumber industry, but with a business which 
directly and seriously affects the whole social, industrial, 
and commercial life of the northwest. 



Early Mill Operations in the Northwest. 

Mr. Edwin G. Ames, Manager of the Puget Mill Com- 
pany, one of the oldest lumber concerns on the coast, gives 
a graphic description of the early life of the industry in 
the northwest. His mill was originally located on the 
site of the present plant, in 1853. The timber and its 
proximity to water controlled the location. Prior to the 
advent of the first railroads in 1883, the only markets 
open to the mill operator were either local or such as 
could be reached by water. Indeed, it was not until 1887 
that the first through transcontinental train reached 
Tacoma, coming directly across the Cascade Mountains. 
In those early days the mill owners not only manufac- 
tured the log into lumber, but were ship owners and 
operators as well. They swept the seven seas in search 
of business, and it was these pioneers of the industry to 
whom the honor is due of carrying ' ' Oregon Pine, ' ' as it 
is generally called, to the uttermost parts of the world, 
and of establishing for it a character for merit which still 
persists. The Puget Mill Company at one time had a 
fleet of 16 sailing ships of its own engaged in trade be- 
tween its mill and ports throughout the world (Eec. p. 
24). Its method of conducting business was typical. The 
millman was manufacturer, trader and sailor. Time has, 
of course, changed the methods of conducting foreign 



14 

business in the lumber industry as in all others; but at 
that time, in lumber as in other trades, the Yankee skip- 
per and the stars and stripes nobly represented abroad 
all that was best in the commercial life of our country. 

During this early period British Columbia was almost 
a wilderness — a fact which in a degree explains the start 
we secured over it in the offshore business. Timber was 
a drug on the market, if the word '^market" could be ap- 
plied to the conditions obtaining, and everybody — govern- 
ment, state, and individual — hailed Avith joy an oppor- 
tunity to dispose of it at any price. In many places it 
was worse than a drug — it was a positive handicap to the 
pioneer trying to carve out of the wilderness a home for 
himself and his family. The removal of a tree meant 
heavy labor and much time, yet they had to be removed 
in order that the soil might be cultivated and the family 
might survive. It is, therefore, a matter neither for won- 
der nor for condemnation that forests were not looked 
upon then as they are today. Many who consider and dis- 
cuss the subject of forest conservation in the West appar- 
ently have no conception of what that part of the coun- 
try was like when the pioneers first brought it under our 
flag, or of what they had to endure in order even to live. 
For the same reason much unjust condemnation is in- 
dulged in today because modern conditions are made a 
yardstick to measure the necessities of half a century ago. 

Railroad Development in the Nortlitvest. 

On September 10, 1883, at Portland, was celebrated the 
opening of the first through transcontinental line to the 
northwest. This line operated between St. Paul and Port- 
land and was composed of the Oregon Railway & Navi- 
gation Company and the Northern Pacific Railroad Com- 
pany, whose lines met at Wallula, Washington. Direct 
connection was first made with Tacoma in October, 1884, 
through the use of a large ferry plying from Goble on the 
Oregon side of the Columbia River to Kalama on the 



15 

Washington side. On November 24, 1884, connection was 
made at Huntington, Oregon, between the lines of the 
Oregon Railway & Navigation Company and the Oregon 
Short Line Railroad Company, opening a through route 
to Omaha and thence east. On July 3, 1887, the Northern 
Pacific operated its first train over its own rails across 
the Cascade Mountains to Tacoma. During all of this 
time, and before, a railroad had been in operation down 
the Willamette Valley as far as Roseburg, and was finally 
extended to a junction with the Southern Pacific Com- 
pany, thus making a rail route to San Francisco and 
thence east and south. 

During this period there was no marked development 
in the lumber industry. Rail rates were high; and as 
markets reached by rail were at long distances it was 
hopeless to attempt to compete in those markets with the 
forests of the north or south. Finally, in the latter part 
of 1892 or very early in 1893, the Great Northern reached 
Everett and shortly thereafter Seattle. This date marks 
the real birth of the industry in the northwest. Mr. James 
J. Hill saw clearly not only the value of the growing tim- 
ber as a railroad asset but also the necessity of securing 
a market if this asset was to be made available. Accord- 
ingly, on February 20, 1893, the following rates were 
established from Pacific Coast territory west of the Cas- 
cade Mountains generally: 

Gt. Northern to St. Paul . . 40 cents per hundred 
North. Pac. to St. Paul. .40 cents per hundred 
Union Pacific to Omaha . . 50 cents per hundred 

The rates in effect immediately prior to this date, over 
the Northern Pacific and Union Pacific, were 55 cents 
per hundred. As 10 cents per hundred on green lumber 
amounts to $3.30 per thousand, the difference caused by 
the change is obvious. The shingle rate was 10 cents per 
hundred higher than the lumber. The development of 
the industry in Washington was much more rapid than 
in Oregon, owing to the more general application of the 



16 

rate named, and the fact that the rate was 10 cents per 
hundred pounds less than from Oregon points, except 
Portland, which also enjoyed the rates named by the 
Northern Pacific. 

At this time, for obvious reasons, stumpage w^as of little 
value, and manufacturing was crude compared to present 
day operations. Surprising as it may appear, it was not 
until 1899 that, except for local use, lumber manufactur- 
ing commenced in the Willamette Valley, and it was gen- 
erally believed that timber there was fit only for the 
crudest uses, such as railroad ties, etc. 

Distance From Markets. 

The industry is of comparatively recent origin in the 
northwestern states, and this section of the country is 
so situated geographically as to create peculiar problems. 
The principal rail market is 2,000 miles and more to the 
east of the producing territory, and the freight rate gen- 
erally equals and often exceeds the value of the manu- 
factured product. The California market — a valuable 
one — averages a thousand miles distant whether by rail 
or water, while thousands of miles of ocean separate the 
producing territory from either the foreign markets or 
the eastern coast of the United States, on water-borne 
shipments. 

National Forests. 

The standing timber belonging to the Federal Grovern- 
ment in the three northwestern states is estimated to 
amount to 288,400,000,000 feet, and the acreage within 
these forests at 46,566,931 acres (Bureau of Corporations 
Report, 1909). While these forests were originally set 
apart as reserves for future use, owing to causes not nec- 
essary to discuss at this point, the original purpose has 
been more or less modified, until now their operations 
figure quite largely in the lumber industry ; and they are 
a factor which must be reckoned with, particularly west 
of the Rocky Mountains. 



17 

Location of Timber. 

The timber in the northwest is found in the coast region 
on and west of the Cascade Mountains, in the Willamette, 
Umpqua, and Eogue Eiver Valleys, on the eastern slopes 
of the Cascades, and in the mountainous regions of east- 
ern Oregon, Washington, Idaho, and western Montana. 
Much of this timber, as has been pointed out, is in the 
National Forests and under the Forest Service ; stumpage 
in large quantities is being sold out- of these forests, and 
the Forest Service is proraoting such sales. As we have 
said, this situation is not found to any considerable ex- 
tent elsewhere in the United States, and no fair solution 
of the problem under review can be reached without tak- 
ing it into account. 

Canadian Competition. 

. To the north an active, virile commonwealth, producing 
the same commodity and competing in the same markets, 
is aiding its own lumber industry in every reasonable 
way. British Columbia competitors enjoy not only the 
same rail rates to the markets in the United States, to 
which fact reference has been made, but by reason of the 
operation of our navigation laws such competitors can 
charter ships under any flag in normal times for delivery 
at any port in the United States on the Atlantic coast at 
from $2.50 to $3 per M feet less than can the shipper in 
the United States. Some preferential tariffs are now in 
effect between Canada and other British Colonies, and 
the establishment of such tariffs between all the British 
possessions are being urged with vigor. 

The Export Trade. 

In the past the Pacific Coast states have done by far a 
greater export business than has British Columbia. It 
must not be assumed, however, that this condition will 
continue unchanged. This phase of the subject will be 
elaborated later. 



18 

The war, while affecting this country as all others, has 
necessarily borne harder on Canada than on us. But 
some day — and God speed the day — the war will end, and 
it may be accepted as a certainty that everything an in- 
telligent government can properly do will be done, by 
Canada and by every other country engaged in this war, 
to rebuild and reconstruct their industries, and to heal 
their commercial wounds. It would, therefore, seem that 
ordinary prudence and business sagacity should impel the 
government of the United States in like manner and with 
like persistency to aid, foster and further its own indus- 
trial and commercial interests. 

Growth of Business. 

Growth was rapid; and competition, not only between 
local mills, but also with woods from other parts of the 
country, was keen enough after the business got a fair 
start. For a long time a donkey engine, a circular saw, 
and 160 acres of stumpage was all one needed to become 
an operator. This condition could not and did not tend 
to stability in the trade, increase of price, or limitation of 
output, or permit of any real control of the industry by 
those engaged in it. 

Public Interest. 

This matter is before the Commission on no complaint 
under the law — it is far broader and deeper than that. 
It is based on the fact that the industry is of such magni- 
tude and its operations so widespread, its conduct affects 
so large a number of people, and the basic element on 
which it is founded, a natural resource whose use and 
conservation is of such national consequence, that the 
question is to some extent at least charged with a public 
interest. We have heretofore set forth the purely com- 
mercial importance of the industry. On its face the con- 
duct of any industry that represents an investment of 
nearly twelve hundred million dollars, employs directly 
nearly eight hundred thousand people, and produces over 



19 

eleven hundred million dollars' worth of manufactured 
product annually, is more or less a matter of real public 
concern. When, in addition to this, it appears that by far 
the larger part of the value of the product represents 
labor, then — if the welfare of those whose toil is of con- 
cern — such an industry is surely entitled to consideration, 
on this last ground if on no other. It is not deemed nec- 
essary to elaborate this phase of the matter. The interest 
of the public in the questions here presented and the need 
for constructive thought in dealing with them are too 
obvious and too urgent to need the support of argument. 

Future Development of the Industry. 

Is the lumber industry of the future to be composed of 
many small and widely scattered units, or will the ten- 
dency be toward large scale operations, in which not only 
the log will be transformed into lumber, but waste will 
be utilized in by-products? Consideration of this ques- 
tion leads to the conclusion that, while by reason of the 
nature of the business there will always be a considerable 
number of small plants, economic laws will ultimately 
compel in some sections large scale operation with a suffi- 
cient supply of standing timber to justify the fullest utili- 
zation of the log. It is not uncommon, even now, to find 
saw mills not only without dry kilns, but even without the 
facilities for working the green lumber. The planing mill 
was at one time entirely distinct from the saw mill, and 
even yet the door factory is generally conducted as a 
separate plant. There is but little effort or opportunity 
to utilize what might be termed saw mill waste ; yet there 
would seem to be no good reason why this waste, — slash- 
ings, small wood, and stumps, — should not be utilized in 
by-products, such as wood pulp, charcoal, turpentine, 
creosote oil, tar, and pitch. Obviously, no small business 
could conduct such operations; yet, looking into the 
future, it is difficult to see how, with constantly increas- 
ing competitive pressure not only from other woods, but 
also from substitutes, the industry can be placed on a sub- 



20 

stantial basis unless in tlie heavily forested sections it is 
conducted on a large scale. Even now the waste in the 
best conducted operation is great, and the problem is and 
always will be to secure the greatest use of the raw mate- 
rial — the log. Moreover, in the manufacture of lumber, 
the operations should be carried on as closely as possible 
to the tree. The consumer is quite as interested in this 
as is the manufacturer. Freight rates on raw material 
to be remanuf actured at a distant point, with the attend- 
ant waste in the manufacturing process, impose an un- 
necessary burden on the consumer. This situation limits 
markets and handicaps the industry in its efforts to stem 
the rising tide of substitutes. 

An ideal operation would be one that would utilize the 
log and every possible part of it in the mills and ship and 
distribute only the finished product, whatever that 
product might be. Waste of raw material and waste of 
transportation would in this way both be saved; but 
plants capable of such efficiency cannot be small ones. 
This method woiild undoubtedly conserve the timber sup- 
ply and lead to the most complete use of the forest. Para- 
doxical as it may seem, it would also tend to lower the 
cost to the consumer and afford better and steadier profits 
to the operator. This would be because of the more com- 
plete use of raw material, wider economy, modern dis- 
tribution and the saving in transportation. Such a mode 
of operation would place the industry on a much more 
stable basis; and where, as in the northwest, it is the 
dominant industry, the effect would be far reaching, and 
would result in placing other businesses, as well as the 
communities which are largely dependent on lumbering 
for their prosperity, on a sure foundation. In other 
words, if we are correct in our premises, the general ef- 
fect of operating through larger units in the heavily 
timbered sections would be beneficial from a community 
standpoint. 

The consideration of other factors leads to the same 
conclusion. This is particularly the case on the Pa- 



21 

cific Coast, where conditions vary from those in other 
sections of the country. Logging is generally, if not al- 
ways, carried on in more or less mountainous sections, 
involving large plants and difficult operation. Wide distri- 
bution of the product is a necessity ; and in order to secure 
the best results considerable stocks must be carried, and 
the best merchandizing effort will be required to place the 
lumber industry on terms of equality with its competitors. 

There is nothing new in these suggestions; and it is 
only because a certain amount of prejudice exists against 
big business, simply because it is big, that we make them. 
Bigness is not synonymous with badness, and if our study 
leads to certain conclusions it is but fair that we should 
state them. Neither do we mean monopoly when we speak 
of big business. The fact that economic laws have led to 
the adoption of larger and more complete units in almost 
every industry does not imply that only one vast unit 
would be the ideal condition. 

There are scores of illustrations which might be cited 
to support this statement. The inevitable working of 
economic law in all successful business has constantly 
tended to bring about gradual expansion, departmentized 
manufacturing, better distribution and great utilization 
of new material. The result has been a steady improve- 
ment in the quality and diversity of the product, and a 
general lowering of price to the ultimate consumer. In- 
deed, in the face of experience and of a knowledge of the 
facts surrounding the operation of this industry, the bur- 
den of proof would seem to be on those who contend that 
the ordinary and accepted rules of business will not oper- 
ate in lumbering as in other industries. 

This is not to say that there is no place in the scheme of 
things for the small mill, for there is. No more conclu- 
sive evidence of this is needed than the facts disclosed by 
the report issued by the Department of Commerce and 
Labor, May 19, 1911, entitled ''Forest Products of the 
United States," wherein it was shown that in 1909 there 
were reported 42,041 saw mills, big and little, in the Unit- 



22 

ed States, and even a greater number was reported for 
1910. The 1909 report shows that, of these, 28,459 mills 
each cut less than 500 M feet per annum. Such states as 
New York, Massachusetts, Pennsylvania, and others had 
and have a large number of saw mills which serve pur- 
poses useful to the counties in which they are located. 
But it is nevertheless true that the small mill, having no 
serious problems connected with raw material or dis- 
tribution, can only fit the place to which it is adapted. 

It is certain that the entire public is interested in the 
true welfare of this business. The only problem is to find 
the path which leads to that greatly desired goal. Those 
who would tear down a commercial structure (the result 
of years of experience and effort) must assume the task 
of creating something which will take its place and be a 
better structure than the former one. The standing tim- 
ber must be utilized. Under what methods or arrange- 
ments can it best be gotten out and made useful to man- 
kind? That is the real problem; and it is particularly 
pressing in the Pacific Northwest, where for many years 
to come the lumber industry must in the nature of things 
remain a matter of gravest concern. 

PARTICULAR SITUATIONS. 
DOMESTIC. 

(1) Special Difficulties. 

During the period under review the industry passed 
through many trials and vicissitudes, not the least of 
which were advances in rail freight rates to eastern mar- 
kets. This disturbed established conditions, affected 
markets, and demoralized trade. The impression pre- 
vailed that the manufacturer was making undue profits 
and robbing the consumer. No consideration was given 
to the enormous difference between the cost of getting 
the lumber to market from the Pacific Northwest and that 
of marketing it from Michigan, Minnesota, Wisconsin, 
and other nearby points, nor to the generally increased 



23 

cost of production. If these hearings have no other ef- 
fect, or serve no other purpose, it is hoped that the facts' 
elicited by them will serve to set the public right on some 
of these questions. 

In the past fifteen years very many substitutes for lum- 
ber have been found and their use pushed with all the re- 
sources and ingenuity at the command of those exploiting 
them, with the result that the lumber industry is con- 
fronted not only with a low price level but also with di- 
minishing consumption. 

The lumbermen of the Pacific Coast looked to the open- 
ing of the Panama Canal to furnish substantial aid in the 
way of an opportunity for water distribution; but it is 
history that although the Panama Act, as passed, relieved 
vessels engaged in the domestic trade from the payment 
of tolls, the law was subsequently repealed and an equal 
toll charged all vessels no matter in what trade engaged. 
The war, owing to the effect it has had on the supply of 
tonnage, has necessarily interfered with the use of the 
Canal, and thus far the effect of the tolls charged has not 
been felt in connection with the competition between 
British Columbia and the Pacific Coast states. It is cer- 
tain, however, that with the restoration of peace and the 
opportunity afforded British Columbia to use the vessels 
of the world between their ports and ports of the United 
States, while the United States manufacturers are lim- 
ited to vessels constructed in this country, the toll will be 
a considerable handicap in meeting the competition of 
British Columbia in Atlantic Coast markets. The war 
has also brought to the lumberman, as well as to others, 
a realization of our weakness in respect to a merchant 
marine. A nation of one hundred million people found 
its trade paralyzed at a moment's notice, because the 
transportation of its products had been largely left in the 
hands of other nations. Over night we awoke to the fact 
that, by ourselves, we are without means of marketing our 
products. 

Notwithstanding the discouragements and difficulties 



24 

to which we have referred, it is but fair to the men en- 
*gaged in the lumber industry to say that they have con- 
stantly struggled to solve the problems confronting them. 
Growing taxation on timber lands, increased costs of 
operation, internal competition, have all to a greater or 
less degree been met by improved methods in operation, 
both in the forest and in the mill. It is not, therefore, as 
men w^ho have done nothing to help themselves that they 
appear before this Commission, but rather as units in a 
vast industrial system involving problems of nation-wide 
significance and effect. It is in this spirit that they have 
come to the tribunal created by law to hear them, whose 
duty it is to aid and encourage in all lawful ways the in- 
dustry and commerce of the United States; and have 
frankly and freely laid the facts before it. 

A consideration of the causes leading to existing con- 
ditions may be briefly summarized as follows : 

First — Those inherent to the industry. 

Second — Those more or less under the control of 
those engaged in the industry. 

Third — Those over which those engaged in the in- 
dustry have no control. 

We do not minimize the difficulties to be overcome, nor 
overestimate what should or might be done by the gov- 
ernment, but it is believed that closer co-operation be- 
tween the appropriate departments of the government 
and the industry in general, as well as co-operation be- 
tween those engaged in the industry, is necessary to se- 
cure the best results. This latter element, owing to the 
nature of the business and its widely scattered and nu- 
merous units, will doubtless be difficult to secure ; but in 
this as in every other business only proper co-operation 
will produce the best results. Without attempting at this 
time to point out each and every way the government may 
properly aid the industry, it is believed that, with a clear 
understanding of the facts and of the necessities of this 
and of all other industries, means will be found to solve 



f 



25 

some of the problems — problems which are world-wide 
in their significance and extent, and which flow from re- 
lationships and competitive conditions of international 

scope. 

(2) Prices. 

With the growth of the business stnmpage values in- 
creased, with corresponding increases in carrying costs. 
We will not enlarge on the prevalence for a number of 
years of what might almost be termed a mania for the 
acquisition of timber lands — a condition caused by the 
idea then prevailing that the standing timber of the 
United States would be exhausted in the comparatively 
near future. Nor is it necessary to dwell upon the effect 
this speculation had upon the fortunes of some indivi- 
duals. That section of the Pacific Coast west of the Cas- 
cade Mountains, followed later by the Willamette Valley, 
the eastern parts of Oregon and Washington, Idaho, and 
western Montana, was soon producing very considerable 
quantities of lumber. Prices gradually advanced, and, in 
1906-1907, owing to the enormous and sudden demand 
caused by the great San Francisco fire and the Valparaiso 
disaster, as well as the inability of the railroads to move 
the tonnage to market, they reached their zenith. 

During this same period, and until 1910, the west was 
being rapidly settled, railroad building was being pushed, 
and there was a good demand for lumber from settlers 
and for construction purposes generally. These condi- 
tions led to the rapid establishment of many new plants 
with greatly increased output; and, while prices were 
high, profits generally were not great, owing principally 
to the lack of transportation and the higher cost of pro- 
duction. In other words, by no means did all the advance 
go to the manufacturer. Since 1906-1907, with the excep- 
tion of the spring of 1913, prices have steadily declined, 
until at the time of this investigation (the summer of 
1915) lumber and its products have generally been selling 
at and below the cost of production. Such a condition is 
bad and unsound from every standpoint, and, in view of 



26 

the magnitude of the industry, vitally concerns not only 
those directly engaged in it, but also the nation at large. 
A partial failure of a grain crop is deplored as a na- 
tional calamity. A shrinkage in the price of cotton, or the 
inability to market it, is quite properly treated as a na- 
tional question. Such situations always secure the help 
of every branch of the government which can properly 
act in their behalf. Yet it would sometimes seem as if, 
owing probably to a lack of knowledge of the industry 
and of its relation to the general business of the country, 
the conditions in the lumber trade are of but little con- 
sequence to any except those engaged in it. 

(3) Cost of Production. 

(a) In General. 

Exhibit G. introduced at the hearing at Chicago (p. 
103) in connection with the statement of Mr. E. B. Hazen 
is a composite statement of the cost of manufacturing 
lumber, embodying the figures of 20 rail and rail and 
cargo mills in Washington and Oregon for the year 1913. 
It was prepared by a certified public accountant in con- 
formity with the views of Mr. Gary representing the For- 
est Service. It is accurate and representative. It is set 
out both in the printed report of the Chicago hearing and 
as Appendix B of this brief, and is, we believe, the first 
attempt of the kind to secure what might fairly be termed 
the average manufacturing cost of producing lumber in 
the Northwest states. The statement sets out in detail 
cost figures and explanations thereof. At this point we 
give the totals only; yet certain facts which should be 
borne in mind in a consideration of the tabulation are as 
follows: (Chicago Rec, p. 105). 

Cost^ of Logs and Cost of Selling are not included, 
excepting that Salaries and Sundry Expense cover 
the usual handling of sales in the office. The cost of 
commissions, separate sales offices, traveling sales- 
men, etc., is excluded. The Yard cost absorbs the 



27 

handling of lumber sold at retail, the extra cost of 
which is small in a composite statement. 

Lost accounts J which were not included in the cost, 
averaged 6%c per M on the cut for the rail mills 
and 5c per M for the cargo and rail mills. This 
included losses on local or retail sales for both 
classes of mills. It may be that there were further 
losses in the latter class, on accounts transferred to 
San Francisco. 

Shipping expenses not common to all the mills 
have been excluded, such as scow rent and towing, 
switching to main line of railroad, etc. 

Interest. To the ^^Manufacturing Cost" there is 
added the cost of the use of the money tied up in 
plant, logs, lumber, customer's accounts, etc., after 
allowing for amounts owing for pay-rolls, logs, and 
supplies. The portion of this money which is sup- 
plied by the stockholders might be invested in inter- 
est-paying securities if it were not laid out in the 
saw mill business, and the portion which is borrowed 
requires a direct cash expenditure for its use (inter- 
est). Therefore, while technical accounting would 
exclude interest from the manufacturing account, it 
is in fact a cost of conducting the business and is 
here shown in the cost per M feet of lumber cut. 
The rate of 6% is used in the statement, though 
money to carry stock and accounts costs 1% and 8%. 

It will be noted that for convenience the rate per 
M for interest on logs and cash is the same for all 
of the mills, though the cargo shipping mills prob- 
ably require a larger stock of logs per M for their 
orders than do the rail mills. 

Shut-downs and Night-runs. It will be observed 
that the average run of the rail mills furnishing 
statements was 254 10-hour days, and of the cargo 
and rail mills 329 10-hour days. The former class 
included the shortest run of all of the mills, and the 
latter class, so far as the data at hand indicates, 
included all of the night-runs. 

Obviously the average cost per M for General Ex- 
pense and Interest on Plant is increased by shut- 
downs and reduced by night-runs. A comparison 
of costs should take this into consideration. Depre- 
ciation is affected similarly, unless based on the 
quantity of lumber cut. 



28 



Depreciation. Depreciation in this statement is 
practically a composite figure of the depreciation 
found on the mills' books. The basis in some in- 
stances is a percentage of the plant value, in others 
is a lump sum, and in still others is a rate per M feet 
of lumber cut. The question of a proper charge for 
depreciation in the composite statement is still open 
for consideration. 

Repairs. It is probable that some repair-labor 
has been included in the operating-labor accounts, 
particularly in the yard, where the time of men mak- 
ing repairs is not always separated from the oper- 
ating labor. In some instances it was found that 
planking, spikes, etc., used in yard repairing had not 
been charged on the books. 

Exhibit E. page 100 (Chicago hearing). Appendix B. 
of this brief, is a statement of the ^^ Average Cost of De- 
livering logs from tree to Puget Sound," embodying the 
figures from twenty camps prepared by representatives 
of the Forest Service. The figures in the statement are 
detailed, but we use the totals, as in the case of the tables 
showing the manufacturing cost. The following facts in 
considering the table should also be borne in mind : (p. 
101, Chicago hearing.) 

This statement does not include the cost of stump- 
age, interest of any kind, discounts on logs sold, 
towage to mill, or taxes on standing timber. It is 
intended here to include only the cost of transform- 
ing, transporting, and sorting the logs, taking them 
to the point of sale for straight loggers. Stumpage 
and the taxes on timber will be handled in another 
section of the work. Discounts have been looked on 
as more closely related to realization than to cost of 
logging. Interest, whether on capital invested or on 
borrowed money, complicates the matter of cost and 
is most clearly considered as related to profit. 



29 

1913. 
Cost of Manufacturing Lumber per M Feet. 

Cargo and 
Rail Mills. Rail Mills. 

Boom and Mill $2,129 $2,031 

Planer and Kilns 925 .653 

Yard 1.256 1.293 

Total Direct Operation $4,310 $3,977 

General Expense 867 .690 

Depreciation 480 .397 

Total Manufacturing Cost $5,657 $5,064 

1913. 

Average Cost Delivering Logs from Tree to Pug^t 

Sound. 

Total Direct Operation $4,782 

Depreciation 306 

General Expense '. 340 

Total Average Cost per M log 
scale $5,428 

Total Manufacturing and Logging Cost. 

Cargo and 
Rail Mills. Rail Mills. 

Total Manufacturing Cost $ 5.657 $ 5.064 

Total Logging Cost (Inland 

Mills) 4.42 *5.13 

Total Manufacturing and Log- 
ging Cost $10,077 $10,194 

In arriving at actual manufacturing cost we have al- 
lowed for over run on log scale and stated cost to rail 
mills as accurately as possible. 

It will be noted that interest on plant, equipment, cap- 
ital, stumpage, discount on logs sold, taxes on stumpage, 

* Puget Sound cost less over run 12% per cent, after adding towage 
of 35 cents to $5.42. 



30 

and the stumpage itself are not included in this state- 
ment. Commissions, expense of separate sales offices, 
traveling salesmen, etc., are also excluded. In addition, 
shipping expenses not common to all the mills, such as 
scow rent, towing, switching to main line of railroad, etc., 
have not been taken into account. Another very im- 
portant item omitted is towage to the mill. The cost of 
towage varies with the distance, but a conservative figure 
would not be less than 25 cents per thousand. 

(b) Selling Prices. 

At page 102 of the record (Chicago hearing) appear 
reports showing net average selling prices of six cargo 
and rail mills and six all rail mills for years 1910 to 1914 
and six months of 1915, all years inclusive. The cost of 
selling, commissions, discounts, etc., are deducted from 
gross selling prices, leaving net results. 

Net Averages Selling Prices Per Thousand 
Cargo and Rail Mills. 

1910 1911 1912 1913 1914 1915—6 months 
14.30 12.35 13.21 13.64 11.18 10.90 

This shows an average price per thousand for the pe- 
riod of 51/2 years of about $12.60 per M. 

Total Manufacturing and Logging Cost $10,194 

Towage estimated .25 



Total Producing Cost $10,444 

It will be observed that not considering stumpage and 
other enumerated items for the entire 5y2-year period the 
cargo and rail mill received on an average a price of but 
$2.16 per thousand over cost of production only, and in 
the first six months of 1915 but .46 cents per M. over pro- 
ducinc: cost. 



31 

Net Average Selling Prices per Thousand. 

Six All Rail Mills. 

1910 1911 1912 1913 1914 1915—6 months. 
14.45 12.78 13.69 12.73 11.29 10.06 

This shows an average price per thousand for the pe- 
riod of 5% years of about $12.50 per M. 

Total Manufacturing and Logging Cost $10,077 

We have added nothing for the rail haul from logging 
camp to mill, as it is not improbable that the decreased 
cost of logging for interior mills over water mills justi- 
fies the omission. 

In the case of the rail mills, and not considering stump- 
age and other enumerated items for the 5%-year period, 
it appears that such mills received $2.42 a thousand over 
cost of production only^ and in the first 6 months of 1915 
received .02 cent less than producing cost. 

It further appears from an examination of the detailed 
statements that interest at the rate of only 6% on manu- 
facturing plant, logging investments, lumber stock, log 
stock, accounts receivable, and current cash, amounts to 
$1.02 per M for rail mills, and 93 cents per M for cargo 
and rail mills. It will be noted that the interest is figured 
at 6%, which is a lower rate than is generally available 
in the west for loans for this purpose. 

(c) Investment. 

Considering now the value of the raw material, a con- 
servative figTire for the years under review would be from 
$1.50 to $2 per M. In estimating the cost of plants on 
the Pacific Coast it has been found that $2,000 for each 
M feet daily cutting capacity is fairly accurate, and 
$1,500 for each M feet daily logging capacity. Based 
on these estimates, which are accurate enough to be relied 
on by those engaged in the business, the following tabula- 
tion would show the average amount of investment in the 
mills whose cost figures were obtained. 



32 

Rail Mills. 

Mill $200,000 

Logging Plant • 150,000 

Stock of lumber and logs, accounts, working 
capital, etc 200,000 

$550,000 
Rail and Cargo Mills. 

Mill $270,000 

Logging Plant 202,000 

Stock of Lumber and Logs, etc., as above. . 200,000 

$672,000 

It will be noted that Mr. Gary's figures show in plant 
and working capital for logging $175,000, so that the 
figures given will not be found to be excessive. More- 
over, on the Pacific Coast, a large percentage of plants 
feel it absolutely essential, in order to justify investing 
this amount of money, to have a timber supply to cover 
from 15 to 20 years ' cut. The amount of the investment 
in timber for the average mill under review would be at 
least $1,000,000. 

Uniting the figures we have analyzed, but omitting 
some elements of cost above mentioned, we reach this 
final result : 

(d) Summary of Tables. 

Rail Mills. Cargo &Eail Mills. 

Average Annual Output. 25,000,000 45,000,000 
Total Manufacturing 

Cost $5,657] Mr. $5,064] Mr. 

j^Cary's ^Cary's 

Total Logging Cost 4.42 j figures. 5.13 j figures. 

Towing .25 

Stumpage 1.50 

$11,577 $11,944 

Interest on plants, etc., 

6% on estimated onest. val. 

value $550,000 1.32 $672,000 .90 

$12,897 $12,844 



I HUH • m». 




niutu K. u* 




tanrM< eiup* 

ItU«u« » tablitklx 

itMl (oUlBf WUl 

OKIUnt, lba*( 







h.tt 
• OK 



im 



JlO0« 







n.o.,« 




lAU biutrltt 1 








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IMI miMtrl.! 



:«.« 



33 

Profit on investment in 
plant and working 
capital involved (only 
excluding timber) at 
say 12% 2.60 1.79 



Total $15,497 $14,634 

The reason the cargo and rail group require a less 
amount to secure the same return on plant investment 
than the rail mills is that the tabulations show they have 
less investment compared to their capacity. On the other 
hand, it would be more accurate to consider stumpage for 
this group as costing at least $1 per M more than for the 
inland group. Trees tributary to tide water are worth 
$1 per M more than the same quality of stumpage inland. 

To secure, however, a manufacturer's profit of 12% in 
a business which, to put it mildly, is a hazardous one, the 
manufacturer must receive in a rail mill not less than 
$15.50 per M feet and in a cargo and rail mill not less 
than $14.63 per M feet, valuing stumpage at $1.50 per M 
(and most of it has cost more). The investigation con- 
ducted by the Forestry Department in British Columbia 
substantiates these figures, (Chicago Rec, p. 93) and it 
is our belief that the investigation conducted by our For- 
estry Department will do the same. It cannot very well 
do otherwise, for the facts are as given. This is not to 
say that the figures of particular mills might not vary; 
but taking the industry on the Pacific Coast as an average 
the figures will be found substantially accurate. 

(e) Confirmation of Price Movement. 

Confirmation of these figures is found by independent 
comparisons. 

The chart introduced by Mr. Babcock at the Tacoma 
hearing (p. 56), and reproduced here, shows in graphic 
form the situation as it has existed since 1912 in the states 
of Washington and Oregon. It is a cut and shipment re- 
port from 80 identical mills, showing the relation of ship- 



34 

ments and prices to the cut from January 1, 1912, to and 
including the month of June, 1915. It also shows the pro- 
duction, which will be referred to later. 

This chart shows these price lines. The top line is No. 
2 flooring. In January, 1912, it sold for about $19.50. It 
gradually advanced until March, 1913, holding at $26 until 
May ; and it has declined steadily since, its price on June 
1, 1915, being $17 per M or $2.50 per M less than on Jan- 
uary 1, 1912. The lower line represents the price move- 
ment of No. 1 common. On January 1, 1912, it was worth 
$6.75 per M. It moved up, then down, and on June 1, 
1915, was worth $6.50 per M. The light line in the middle 
represents the average selling price of all kinds of lumber 
during the same period. The average price was about 
$10.75 on January 1, 1912. It advanced, and then fell 
until on December 1, 1914, it was a trifle under $9 per M. 
For some reason this line ends at that point. Possibly 
some of the mills thought it time to quit reporting if there 
was to be no bottom, for which action they can hardly be 
blamed. We have all found it much pleasanter if not 
easier to make out reports showing gains instead of 
losses, and the mill men have certainly had a long down 
hill slant to follow. 

- The effect of the law of supply and demand is very no- 
ticeable in this connection. Except on one occasion, for 
which there was a special reason, an increase of the sup- 
ply led to an innnediate response in the form of a decline 
in the price. This is very significant considered in its 
relation to the problem of production and its possible 
control. 

(f) The Spohane Hearing. 

The hearing at Spokane showed exactly the same condi- 
tion as to cost of production and prices as was disclosed 
in Oregon and "Washington. 

Mr. John R. Toole presented a statement compiled by 
officers of the Forest Service showing the composite cost 
of operation of mills in what is termed the Inland Empire, 



35 

(that is to say, eastern Washington, eastern Oregon, 
northern Idaho, and western Montana) for the years 1908 
to 1914, both years inclusive. The nnmber of mills in- 
cluded varies from 6 in 1908 to 14 in 1914. These mills, 
being the larger manufacturers, were representative. The 
tabulation covers cost of production f. o. b. car, except 
taxes on timber land. It does not appear whether inter- 
est entered into the cost. The tabulation (Spokane 
Eec, p. 12) is as follows: 

Cost of Production — Inland Empire. 







iUD 


si 


& Td, 

se. 

Sal. 
Txs. 






cost ( 
3ing 11 

cars, 
nc. 
. taut 
Ling 

taxes. 


ctf 
<v 


ft 

m2B 


Mi 


o 


Piling 
Expen 

OfRce 
Plant 


Z^^ 

^^^ 

^o^ 


m 


Total 

produi 

f.o.b. 

mill i 

stpmg 

exclud 

tmbr. 


1908 


$2.12 $5.50 $1.34 $.81 $.89 $1.71 $.37 $13.15 1908 


1909 


2.66 


6.13 


1.43 


.85 .95 


1.50 


.25 


14.28 1909 


1910 


2.30 


7.03 


1.79 


.74 .82 


1.51 


.56 


15.17 1910 


1911 


2.38 


7.25 


1.77 


.79 1.10 


1.56 


.70 


15.92 1911 


1912 


2.40 


7.55 


1.58 


.80 1.00 


1.41 


.58 


15.50 1912 


1913 


2.60 


6.87 


1.54 


.82 .95 


1.52 


.68 


15.22 1913 


1914 


2.14 


7.31 


1.52 


.76 1.02 


1.49 


.74 


15.18 1914 



No tabulation of selling prices was filed, but the follow- 
ing figures were submitted. In 1913 the average price on 
all woods (the highest in the last ^ve years) was $16.03 
per M (Spokane Eec, p. 13). The average selling price 
for the first quarter of 1915 was $12.87 per M (Spokane 
Eec, p. 14). 

According to a compilation of the Forest Service cov- 
ering an average of 29 mills for the past six years, repre- 
senting an average annual production of 816,000,000 feet, 
an average paid up capital of $30,000,000, and an average 
borrowed capital of $13,000,000, these mills earned for the 
six years on all capital an average of 1.49% which was 
insufficient to pay interest on the borrowed capital at 6% 
by an average of $114,000 per year (Spokane Eec, p. 
15). We are now averaging below the cost of production 
at least $2 per M (Spokane Eec, p. 23). 



36 

A very interesting statement of increased cost of log- 
ging operations was given by Mr. Toole from actual 
figures in one of his own. mills. The figures include 
stumpage and all costs into the mill, commencing in 1903. 
It is as follows (Spokane Rec, p. 19) : 



1903 


1904 


1905 


1906 


1907 


1908 


1909 


$5.71 


$5.70 


$5.50 


$6.72 


$8.29 


$9.58 


$8.64 




1910 


1911 


1912 


1913 


1914 






$9.22 


$8.39 


$9.24 


$9.61 


$10.40 





A brief abstract of part of Mr. Toole's testimony is 
illuminating. Stumpage is figured at actual cost (Spo- 
kane Rec, p. 20). Some years' stumpage varied. Our 
own stumpage is figured at a dollar (Spokane Rec, p. 
21). Difference in cost is represented by difference in 
cost of logging. The early logging was on the bank of 
the river ; now we are 20 miles back. The actual cost of 
stumpage did not vary to exceed one dollar at the most. 
Increased cost of logging applies everywhere (Spokane 
Rec, p. 22). Does not know anybody in Montana who 
during 25 years has made any money running a saw 
mill. Such money as has been made has accrued from 
the enhanced price of stumpage (Spokane Rec, pp. 25, 
26). We do not close down because we had better run 
and lose some money than close down and lose more 
(Spokane Rec, p. 26). 

The following statement by Mr. Toole is also of mo- 
ment (Spokane Rec, p. 8) : 

^ ' The Inland Empire embraces the pine producing 
territory east of the Cascade Mountains, including 
Eastern Washington, Eastern Oregon, Idaho and 
Montana west of the Rocky Mountain Divide. 

^^This territory has a timbered area of some 35,- 
000,000 acres with a stand of approximately 300,- 
000,000,000 feet made up as follows : 

'^42% Western Pine, 9% Idaho White Pine, 21% 
Red Fir, 10% Larch, 9% Pole Pine, 3% Cedar, 2% 
White Fir, 1% Hemlock. 



37 

^^Of the 35,000,000 acres, 23,000,000 is in the Na- 
tional Forests, 4,000,000 is state and other public 
ownership and 8,000,000, or about 25% of the area, 
privately owned. The privately owned contains 
about 33% of the standing timber." 

In general, Mr. Toole's statement is not only conser- 
vative but pregnant with meaning. His statement and 
conclusions on distribution, actual production and capac- 
ity are very significant. These we will discuss later. The 
showing as to the area comprised in the National Forests 
in this section emphasizes the importance of the question 
of their disposition, as well as the relationship of that 
question to the industry at large. 

The capacity of the mills now exceeds the consuming 
ability. Grreater production would but increase the loss 
in money and the waste in the woods. If, under these cir- 
cumstances, the policy be adopted of pushing the sale of 
timber from National Forests, it is not difficult to foresee 
the disastrous results, both to the Nation and to the in- 
dustry, that will surely follow. If, as has been suggested 
by some, the government constructs and operates saw 
mills, the result will be equally certain and disastrous. 
The fact that no market exists which could absorb any 
such quantities of lumber seems not to have been con- 
sidered by the proponents of this plan ; the fact that the 
purpose of the National Forests is to serve as a reserve 
for the future also seems to have been forgotten ; and the 
fact that a billion dollars has in good faith been invested 
by individuals all over the country in the lumber industry 
seems to some to be of no consequence. It would appear 
at times as if the lessons of the past have not yet been 
learned. In a nation 's life fifty years is but as a day, and 
the nation's future is based very largely on the continuity 
and certainty of the supply of natural resources. 

While we are all loyal to a democratic form of govern- 
ment, we must admit that it has its weaknesses, not the 
least of which are the desire to realize on everything at 
once and the inability to follow out to its logical end any 



38 

policy, no matter how patiently and carefully considered. 
Everybody has his own cnre for every ill, and his cure is 
the only one ; and, if it can secure votes enough, it will be 
adopted. Politics with us control too often the disposi- 
tion of the most serious economic problems, and our lack 
of respect for authority and expert knowledge is pro- 
verbial. Indeed at times one would be almost justified in 
saying of us that as a nation we delight to do things dif- 
ferently, and to display our wisdom by showing a con- 
tempt not only for experience, but also for the student 
and his conclusions. 

Either the Forest Service fills a want or it does not. 
Its service to the country either is of value or it is not. 
The conservation of a forest supply is either important 
to the nation or it is not. When, however, we conclude 
that the Forest Service is a real factor in the economic 
life of this country, that the conservation and preserva- 
tion of the forests is a necessity, and that a policy based 
on these fundamentals should be adopted, then the least 
we can do is to carry such a policy out, looking not only 
to the present but also to the future. "We fear some of 
the advocates of the immediate disposition policy over- 
look the results which their policy would entail, not only 
to the individual and to their own communities, but to the 
nation as well. 

(g) The California Conditions. 

Turning now to California we meet there the same sit- 
uation as to cost and price as has heretofore been dis- 
cussed. The most concise manner in which the facts can 
be presented is to quote directly from the record. At 
page 4 (Calif. Eec.) Mr. Self ridge said: 

Owing to the lack of uniform cost systems, it has 
not been possible to compile figures showing the 
actual average costs of manufacturing and marketing 
for the entire industry, but the figures submitted are 
taken from a mill whose physical condition and or- 
ganization are above the average; therefore they 



dhtV 



Rl 



THREE YEAR CUT AND SHIPHENT REPORT FROM EIGHTY IDENTIC/^L MILLS, SHOWING THE REL/\TlON 
Of SHIPMENTS AND PRICES TO THE CUT 




Rfllu AND CflBaO 



TOTAL CAPACITY MILLS 
WESTERN WASH. /^(\ID ORE. 



DOMESTIC CARGO 



^ 



FOREIGN CARGO MIL flNO LOCAL 



»^ 





S,640,SiO,000 












— 





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1 


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LEGEND: LUMBER cur- 



.l/rtBER SHIPPED- 



PRlCE"l COnnoH PRICE '2 V.G.rLOOfllNC- 



-flVERflGE SELLING PRICE- 



masmm 



39 

should be slightly varied in order to show the situa- 
tion as a whole. Covering a period from 1906 to the 
end of 1914, the cost of conversion, including log- 
ging, freight on logs, cost of manufacturing, insur- 
ance, taxes, interest on operating investment only, 
depreciation and general expense (excluding selling 
expense and stumpage), are as follows: 

Average Selling 

Year. Cost. Price. 

1906 $11.05 $15.11 

1907 12.85 17.34 

1908 10.91 14.23 

1909 11.53 13.30 

1910 11.36 13.91 

1911 11.87 13.22 

1912 12.50 14.54 

1913 12.45 15.40 

1914 12.95 14.79 

I will also state here that the United States Forest 
Service has complete figures from this particular 
mill, and these submitted are in accordance with the 
figures furnished them. 

Mr. Boyle : That does not include stumpage. 

Mr. Self ridge: That does not include stumpage 
and the selling expense. Why these particular items 
were eliminated from the figures, I do not know, be- 
cause I have not access to the figures, but those were 
given me. I will also file this chart. 

Mr. Chairman : Mark that San Francisco Exhibit 
No. 1. 

(See Exhibit, page 7.) 

Commissioner Hurley: How do you arrive at 
your cost figures? 

Mr. Self ridge : That I could not say, Mr. Hurley. 
They were arrived at through an accounting system 
and filed with the Forest Service, in line with the 
inquiry that is being made by the Forest Service on 
this Coast today. 

Mr. Boyle: Do you know whether the Forest 
Service had access to the books of the lumber com- 
panies themselves? 

Mr. Self ridge : I do not know. 

Mr. Boyle: Do you know, Mr. Greeley? 



40 

Mr. Greeley: These figures were taken from the 
books of the corapanies by a representative of the 
Forest Service. 

(h) Yelloiu Pine. 

In the Yellow Pine section of the South we again find 
like conditions as to cost and price. The elaborate statis- 
tics prepared by Mr. Keith are printed iii the record, 
pages 11 to 19, inclusive. From these based on the opera- 
tions of 23 saw mill companies, the following facts ap- 
pear : 

1913. 

Yellow Pine (23 Saw Mill Companies). 

Manufacturing Cost, exclusive of selling cost 
and interest $ 6.50 

Logging Cost, exclusive of selling cost and in- 
terest 3.44 

Stumpage 3.83 

$13.77 
Interest — ^plants and working capital 72 

$14.49 
A profit on investment in plants and working 
ca]3ital involved excluding timber say of 10% 
would be per M .' . 1.12 

Total $15.61 

Selling Prices. 
Less Costs of Selling. 
1912 1913 1914 Average 



15.03 16.04 13.02 14.67 

The estimate of the amount of investment in plants, 
working capital, etc., was determined by taking interest 
charged in Mr. Keith's tabulations and capitalizing it. 

Mr. Keith, in submitting these statements, among other 
things said: (Chicago Eec, p. 11.) 



41 

^^ Against the price of $11.70, the amount realized 
for lumber in December, 1914, the cost for the manu- 
facture of lumber in the year 1914 was $14,495. 
Kindly note Exhibits Nos. 1, 2 and 3. 

^'I wish to invite your special attention to the 
practice of the average lumber operation in the 
South providing at least a ten years ' supply of raw 
material behind its operations. In some instances, 
the amount of raw material behind the operation 
exceeds that just mentioned. On a ten years ' basis 
of operation, it is necessary for the lumber manu- 
facturer to liquidate 10% of his assets per annum, 
and in order for him to secure a 6% net return on 
his total capital invested, it is necessary for him to 
secure 27.2% on his cost of manufacture.'' 

(i) Hemlock. 
1915. 
The figures submitted as shown in the record, page 154, 
are incomplete, in that they show no interest charges of 
any kind, thus making it impossible to work out a com- 
parison on the same basis as for other sections ; but other- 
wise it has been reduced to the same basis. The pro- 
ducing cost thus figured for the first six months of 1915 
are as follows : 

Manufacturing Cost, exclusive of selling cost 
and interest $ 6.25 

Logging Cost, exclusive of selling cost and in- 
terest 7.01 

Stumpage 4.06 

Total :. ..$17.32 

Selling price for six months 1915, less cost of 
selling 14.80 

(i) Conclusion. 

We have dwelt at some length on cost of production and 
prices realized for lumber by the manufacturer during 
the past ^YQ or six years. As was said by the Court in 
the Steel Corporation Case, 223 Fed., 55 : 



42 

^^It is a mere truism to say tliat the fixing and 
maintaining by a manufacturer of a fair price above 
cost is not only a right but a commercial necessity, 
and any other course must end in his bankruptcy.'' 

The experience of the industry for a number of years 
past has been most trying. The manufacturers have 
faced a constantly declining market, together with a con- 
stantly increasing expense. The figures submitted are 
accurate; they are far more eloquent than words and 
require no elaboration. 

Who is benefited as a result of such conditions? Cer- 
tainly not the wage earner, nor the farmer supplying the 
products of the farm to the mill hands. The business men 
and the communities who rely in a great measure for 
their support on the industry do not profit by its paraly- 
sis. The railroads which depend so largely on this traffic 
for their revenue suffer or prosper as the lumber busi- 
ness shrinks or expands; and in the last analysis it is 
doubtful if even the ultimate consumer receives the bene- 
fit, if it could be so called, of the low price. The qualtity 
buyer unquestionably does, but whatever advantage ac- 
crues to the small user from the low price is very small 
compared with the enormous loss to the community as a 
whole. We submit that the condition in industrial life 
which is most beneficial to all is that condition, wherein 
each industry secures fair profits, pays fair and living 
wages to its workers, and is able to and does participate 
in the upbuilding of the community in which it is located. 
Such conditions make for national prosperity, for decent 
standards of living, for the establishment of homes, and 
for all that makes life w^orth while. 

Decadent industrial conditions, lack of employment, 
and commercial distress never did and never will benefit 
any communit}^ or any nation. The laborer is as worthy 
of his hire in the lumber industr}^ as in any other. That 
hire he has not received ; and instead of being condemned, 
he should be praised for his determination and pluck in 
holding on in the face of such adverse conditions of all 
kinds as have confronted him for the past seven years. 



43 



(4) THE SHINGLE INDUSTRY. 

(a) Introduction. 

No branch of the lumber industry in the Northwest has 
been the subject of more thought and discussion than has 
that of sliingles. And yet, notwithstanding the product 
is an article of common use and the business one of some 
year 's standing, it is putting it mildly to say that it is in 
a very unsatisfactory condition. Wide fluctuations in 
prices and unstable demands, with more or less demorali- 
zation as a result, have been the history of this branch of 
the industry since its inception. Various reasons have 
been assigned in explanation, and many have studied the 
subject in order to find a remedy for a condition which 
all concede exists. 

The testimony of those engaged in the industry shows 
that, taken as a whole, the business is not only not profit- 
able, but is being conducted at a loss. The Northwest 
states produce red cedar shingles. In 1912 cedar shin- 
gles represented 78.9% of the entire production of the 
United States, and the state of Washington produced 
84.2% of the cedar shingles and 66.4% of the total shin- 
gle output of the United States. The production of the 
states of Idaho, Oregon and Washington by years for 
1909 to 1912, both years inclusive, and of the United 
States for the three first named years, as shown by the 
report of Joseph Burke Knapp and Alexander Grrant 
Jackson to the Forest Service, made in 1914, was as 
follows : 

Shingles Produced (Thousands). 

1909. 1910. 1911. 1912. 

United States . 14,907,3*71 12,976,362 12,113,867 *. . 

Idaho 62,308 60,425 36,354 37,641 

Oregon 293,644 319,894 392,894 271,205 

Washington . . 8,879,467 8,333,639 7,745,525 7,996,251 

According to the statement of Mr. Neil Jamison at the 
Tacoma hearing (Rec, p. 90), the most authentic report 



44 

of the number of sliingle mills in the state of Washing- 
ton was published January 1, 1915. This report shows 
292 live mills, representing an investment of $7,000,000 
and paying to their employes, in wages, about $4,500,000 
annually. Their yearly expenditure for taxes, insurance, 
industrial assessment, and general operating charges is 
about $2,000,000. Owing to the character of the timber 
from which these shingles are made (cedar), about 80% 
of the log is used in their manufacture which, if not so 
used, would be largely wasted. In other words, but 
about 20% of a cedar log would be of commercial value 
if it were not used for the manufacture of shingles. 

Therefore, from any standpoint, this industry is 
worthy of the most serious consideration by this Com- 
mission and by all persons who are interested not only 
in the development of the "West, but in the use of the 
forests throughout the country as well. 

(h) History and Present Conditions. 
Mr. John McMaster, one of the earliest and most 
competent manufacturers of shingles in Washington, has 
prepared for this brief a short account of the history of 
the shingle industry in Washington which is the basis of 
what is said under this heading. Cedar timber in Wash- 
ington about 26 years ago was without value. The pio- 
neer split it into shakes to roof his house, barns, and out- 
buildings, and the Indian hewed out his canoes from the 
better trees ; but in estimating the stand of timber cedar 
was not considered, as it had no commercial value. After 
the Northern Pacific reached Puget Sound in 1887, shin- 
gle mills began to be built in a small way, but it was not 
until after the advent of the Great Northern, and the 
establishment by it and other roads early in 1893 of rates 
under which shingles could move to eastern markets, that 
the shingle business became commercially important. 
The business grew rapidly, reaching its zenith in 1905, 
when reports indicate that 37,486 carloads of shingles 
were shipped from the state of Washington (Pac. Lumb. 



45 

Trade Journal). Under normal conditions about 15,000 
men were employed. Since 1905, however, the produc- 
tion has never been as great. The shipments for the 
year 1912, the latest of which we have a record, are esti- 
mated at 34,000 carloads. 

In the Pacific Northwest the industry was at first an 
unknown quantity. Experience gained in the making of 
shingles in the East was of no value. The climate was 
different, the timber different, and a shingle mill that 
would answer in Michigan was of no value on the Coast. 
The result has been a series of experiments covering 
nearly the entire life of the business; and the rule that 
experiments are costly found no exception in this case. 
After trying out various kinds of machines the manu- 
facturer ultimately returned to the one he started with, 
only very much improved. A continued handicap has 
been the lack of skilled labor, particularly of expert saw- 
filers. This may seem a trifling matter to refer to, but 
more often than not it means the difference between a 
good shingle and an inferior one. Another handicap 
applying to shingles as well as to lumber is the long dis- 
tance to markets and the transportation cost. To sell the 
product in any quantity requires that the shingles be 
brought to a reasonable weight. This is accomplished 
by the drying process. At first this was wholly unsci- 
entific, the first kilns being built in the nature of bake 
ovens. Not only were enormous losses suffered from 
fire, but such a crude process led to over-drying, crimp- 
ing, and other defects, with the result that the product 
was not looked upon with favor by the consumer. Mis- 
takes in construction, inferior machinery, inexperienced 
men, waste of timber, and poorly manufactured shingles 
have all unquestionably been factors in bringing about 
present conditions. 

These drawbacks, however, have been and are being 
remedied. Eed cedar has no superior as a roofing mate- 
rial, and the lessons taught by experience have been well 
learned. From an operating standpoint the mills gen- 



46 

erally are properly designed and equipped, and they are 
now prepared to turn out a good article economically 
and without waste; and, while not manufacturing alto- 
gether the same grade of shingle as is made in British 
Columbia, they do, grade for grade, make just as good a 
shingle. 

The manufacturer, having arrived at this point, now 
faces an irregular and demoralized market, with no 
steadiness of demand or stability of price. During the 
period considered competition between domestic shingle 
manufacturers has been very keen, often forcing values 
below cost. This has been due to a variety of causes; 
excessive production, the facility with which small mills 
could be established, and business methods brought about 
very largely by conditions over which the smaller oper- 
ator particularly had no control. Other domestic compe- 
tition has been afforded by patent roofing, which, coupled 
with the campaign against the use of shingles as consti- 
tuting a fire menace, has proved a serious and growing 
handicap. To overcome this prejudice and to induce the 
use of shingles for roofing purposes is the grave problem 
now confronting the industry. 

Necessarily the burden of taxation is relatively just as 
heavy for the shingle mill operator as for the saw mill 
man; and the interest which the British Columbia gov- 
ernment takes in the manufacture and distribution of 
shingles is quite as keen as that which it manifests in 
the lumber manufacturer. The shingle manufacturer in 
this country believes that the Canadian competition 
which confronts him is unfair competition, and that 
under present conditions the shingle manufacturer in 
British Columbia has an undue advantage over the man- 
ufacturer in the United States. Feeling thus, it is their 
belief that in stating their case to this Commission they 
should state it as they view it, even though in so doing 
some matters may be referred to over which the Com- 
mission has no jurisdiction ; and that unless this is done 
the Commission will not have before it all the facts con- 



47 

stituting the problem which must in some way be solved 
if the shingle industry in the West is to be placed on a 
sound economic basis. 

There is no question but that British Columbia has a 
decided advantage in the raw material, it being esti- 
mated that this advantage in itself represents about 25 
cents per thousand shingles; also in the shingle mill 
about 75% of the labor is Oriental. The labor cost, be- 
sides, is somewhat less in British Columbia than in the 
United States. Attention will be directed to the active 
interest the British Columbia government takes in pro- 
moting the lumber industry. It is but current legislative 
history of the United States that while formerly foreign 
shingle manufacturers paid 30 and 50 cents per thousand 
duty, shingles now enter free. The shipping laws, par- 
ticularly as affecting shipments to the Atlantic Coast by 
water, work as much hardship to shingles as to lumber; 
and under existing laws, with normal conditions, the 
British Columbia manufacturer has an undoubted advan- 
tage on shipments via the Panama Canal. While as yet 
the movement of American manufacturers to British 
Columbia has not assumed large proportions, it is never- 
theless in progress; and the largest shingle mill in the 
Province (said to be the largest shingle mill, entirely 
under one roof, in the world) is owned by Americans 
who have just recently completed the plant and com- 
menced operations. 

The British Columbia manufacturers as yet make on 
the whole a higher grade shingle than is made in Wash- 
ington, but some of the newer mills are now manufac- 
turing practically the same grade. The tendency, more- 
over, on both sides of the line, is gradually to approach 
the same standards. That is, in Washington there is a 
decided trend towards higher grades, better grading, 
more careful packing, and better manufacturing, while 
in British Columbia there is a tendency to produce larger 
quantities of the medium grade.. 

The above being the facts, it is manifest that competi- 



48 

tion between the manufacturers on either side of the line 
will constantly grow more severe. The shrinking in 
prices has necessarily compelled reduction in wages, and 
the closing of mills has thrown many out of employment. 
The American manufacturers are able to supply the en- 
tire demand of the United States for red cedar shingles 
on a ten months run. This in itself necessitates exten- 
sive closing down, which is, of course, increased pro 
tanto by the extent to which foreign shingles displace the 
domestic product. In other words, the industry in this 
country has arrived at a critical stage, and no branch of 
the lumber industry looks more anxiously to this Com- 
mission for relief than that composed of the shingle 
manufacturers. 

Mr. Neil Jamison, president of the Jamison Shingle 
Company, in a statement made before the Commission 
at Tacoma (Bee, p. 90), said that at the present time it 
is impossible for the manufacturer to realize a price for 
his product that will net him any return on the invest- 
ment. He further stated that, according to statistics, not 
since 1900— fifteen years ago — ^have f. o. b. mill prices 
been as low as they are now. Star A Star shingles sold 
then as low as $1.20 per thousand at the mill and the price 
now is the same, while some have sold as low as $1.15. 
He also submitted a comparison of cost between that 
time and this. Shingle logs now are worth, according to 
quality, from $8.50 to $10 per thousand delivered at the 
mill, while in 1900 manufacturers were able to purchase 
a better quality of raw material for from $5 to $6.50. 
In 1900 the scale of wages was lower and the general 
expense of doing business less than it is today; yet 
shingles are now being sold for less than the cost of 
production. Mr. Jamison gave substantially the same 
causes for present conditions as did Mr. McMaster, 
namely: over-production, British Columbia competition, 
the competition of substitutes, and the marketing meth- 
ods. He also called attention to the fact that the Wash- 
ington mills have the capacity to manufacture a sufficient 



49 

supply for the home market, but have never been able 
to operate steadily, a condition leading to periodical shut- 
downs. Importation of shingles from British Columbia 
aggravate the situation. Mr. Jamison gave from his own 
observation an instance of British Columbia shingles 
being sold in Kansas at a price lower than he could meet, 
$1.30 per thousand mill basis. It may be noted that he 
secures the greater portion of his log supply from British 
Columbia. He also pointed out that the business is such 
that small operators can readily engage in it, a ^^one 
machine" mill being worth about $10,000. Occasional 
high prices attract the smaller operator, and that fact 
largely accounts for over-production in the past. He 
estimates the export tax when logs are purchased in 
British Columbia at from $1.25 to $1.50 per M feet, and 
the towing at about as much more. He placed the mini- 
mum cost to the American mills from these causes at 
$2.50 per M feet; yet, notwithstanding this handicap, 
logs are being purchased in British Columbia and deliv- 
ered in the United States at a less price than the same 
quality of logs can be purchased in this market, and the 
estimated advantage to the British Columbia manufac- 
turer in the price of raw material Mr. Jamison reckoned 
at no less than 25 cents per thousand of manufactured 
shingles. He also gave it as his opinion that in British 
Columbia they are able to produce the same grade of 
shingle more cheaply than the Washington manufacturer 
can; that wages in the shingle mills of Oregon and Wash- 
ington had recently been reduced, on an average, 10% ; 
and that conditions are such that further reduction in 
wages may be necessary. In discussing competition with 
substitute roofing materials, he referred to the fact that 
these articles are protected by an import duty of from 
5% to 15% ad valorem. 

As to conditions in general, Mr. Jamison frankly re- 
ferred to the element of speculation that still prevails; 
to the fact that the manufacturer moves his product as 
fast as it is turned out; that control of output has not 



50 

been possible; and that many, being forced to sell for 
wbat tbey can get at tlie time the shingles are produced, 
have been more or less at the mercy of the broker and 
scalper. The mannfactnrers are not permitted to organ- 
ize and take concerted action to control production mar- 
kets or sales prices; but, if placed on an equality with 
competitors and allowed to organize for better distribu- 
tion of the product, they believe that they will be able 
to solve any further trouble. The supply of cedar in 
Washington is dependent on the logging of fir. When 
the fir market is good, there is a good supply of cedar, 
as the cedar is mixed with the fir. In British Columbia 
it is different, as they have almost solid stands of cedar 
and their logging operations are not affected by the fir 
market. 

We have set out the statements of Mr. McMaster and 
Mr. Jamison in considerable detail, as they were the two 
representatives selected to speak for the shingle men. 
As has been suggested, the men directly concerned, both 
for themselves and as representatives of others, feel it 
is only just that the Commission, whatever the limita- 
tions on its power, should have all the facts laid before 
it and should know the attitude which those engaged in 
the industry take toward all phases of the question. It 
may be said that more detailed examination confirms 
these statements, and that, regardless of the conclusions 
one might reach from them, the facts as stated by the 
gentlemen quoted are jiist as they represented them. 

With this brief we submit some interesting photo- 
graphs showing the process of going over the logged-off 
lands the second time. These show clearly the character 
of that portion of the log which is used in the manufac- 
ture of shingles, and demonstrate as no words can how 
this branch of the industry not only conserves the raw 
material, but, through the use of what otherwise would 
necessarily be wasted, creates a merchantable product, 
employs thousands of people, and brings into bearing 
lands which otherwise would be but a waste of stumps 



51 

and undergrowth. The results from the operation of 
this industry are of real importance from a public stand- 
point, and should be seriously considered in any study 
of the subject. It is not alone a question of the use of 
shingles, or of the cost of manufacture as between two 
competing sections. The question is far deeper than 
that; and a superficial study might easily lead to the 
overlooking of economic principles, as well as of impor- 
tant facts which are of grave import both to the West 
Coast states and to the nation as a whole. 

(c) Competition — Substitutes and Canada. 
We have at various points referred to the competition 
which the red cedar shingle has to meet. Substitutes for 
the domestic shingle compete in every market. Their 
sale is energetically pushed, and is much helped by a 
carefully fostered prejudice against wood as a building 
material, and particularly against shingles for roofing. 
To read some of the articles and advertisements, and 
even building ordinances dealing with this subject, one 
would almost believe one's self not safe from fire while 
eating at a mahogany table. This campaign against wood 
on the ground of fire menace has had a profound and 
far-reaching effect. Between themselves, in addition, the 
domestic shingle manufacturers compete most keenly. 
Over-production would account for this if no other cause 
were present. Unless some way can be found by which 
market conditions can be more standardized, it is difficult 
to see how the character of this competition will be al- 
tered. In other words, so far as price to the consumer 
is concerned, domestic competition is so bitter that no 
fear need be felt on that score. As to Canadian compe- 
tition, we again quote from the report of Messrs. Knapp 
and Jackson: 

^^The shingle producing region competing most 

keenly with the Northwest is that immediately north 

of the Canadian line in British Columbia, where the 

. shingle industry has developed rapidly in recent 

years. The British Columbia manufacturer is said 



52 

to have an advantage in the price of raw material, as 
the Provincial government permits the cutting of 
cedar bolts and cedar timber at a cost somewhat less 
than can be obtained on the American side. Further- 
more, it is claimed that in British Columbia only the 
better class of timber is logged and hence a higher 
grade product is obtained. 

^^ Canadian manufacturers employ a cheap grade 
of Oriental labor, mostly Hindus, Chinese and Jap- 
anese, while American employers are restricted by 
organization of employes to hiring white men only. 
The Oriental laborer lives on a lower scale and ac- 
cepts less pay, but he is slower than the American 
laborer and not as efficient. 

^^ During 1910 the United States imported from 
Canada 762,798,000 shingles, many of these from 
British Columbia. During that year no shingles were 
imported into the United States from other coun- 
tries, but the United States exported 17,292,000 shin- 
gles, of which 3,603,000 were shipped into Canada, 
and most of the rest into Mexico and British West 
Indies. 

^'Of the shingles imported into the United States 
from Canada a large quantity is distributed in terri- 
tory which is the logical market for Northwest shin- 
gles. Quantities enter the country through North 
Portal for the North Mississippi Valley and Lake 
States, and large numbers are transported over the 
Canadian Pacific Railway to Montreal and thence 
southward into the Eastern United States. Shingles 
manufactured in Eastern Canada also compete in 
the Atlantic Coast markets.'' 

(d) Prices. 

An examination of the prices received by the shingle 
manufacturers extending over the entire period consid- 
ered indicates, with the exception of two or three years, 
what may properly be termed '^cut-throat" competitive 
conditions, as well as most erratic markets. Using Star 
A Star as a basis and commencing in 1905, it will be 
found during that year that the price varied from $1.31 
per thousand to $1.46; in 1906, from $1.50 to $1.90; 1907, 



53 

$1.90 to $2.73; 1908, $1.52 to $2.18; 1909, $1.54 to $1.83; 
1910, $1.55 to $1.86; 1911, $1.37 to $1.51; 1912, $1.35 to 
$2.22; 1913, $1.40 to $2.15; 1914, $1.27 to $1.55; 1915, 
$1.20 to $1.35. The mere statement of the figures gives 
one but little idea of the variation. The graphic charts 
show the peak prices were quickly reached with as quick 
a recession ; and about the only real purpose such prices 
served was to induce over-production during the advance 
and, as Mr. Jamison said, attract others into the business. 
We take the following from the pamphlet heretofore 
referred to, ^'Western Eed Cedar in the Pacific North- 
west,'' by Messrs. Knapp and Jackson, of the Forest 
Service : 

'^The industry developed rapidly and in the fol- 
lowing year, 1890, the Northwest shingle mills placed 
over 100 million shingles in the eastern markets. In 
1892 a rapid increase in production took place and 
about 200 shingle mills were in operation in Western 
Washington. The panic year which followed caused 
a great slump in prices, the average dropping from 
$1.75 to $1.25 per thousand. In 1894 prices ranged 
as low as $1.00 to $1.05 for 'Stars' and $1.25 for 
'Clears.' Many shingle mills failed by bankruptcy 
and fire destroyed others. During the three follow- 
ing years prices continued low, ' Stars ' ranging from 
85 cents to 90 cents at the mills and 'Clears' from 
$1.05 to $1.15. 

"During the summer of 1897 'Stars' advanced to 
$1.10 per thousand and 'Clears' to $1.25. 

"During the ten years following prices advanced 
gradually until in 1907, the best year ever known to 
shingle manufacturers, 'Stars' averaged $2.39 and 
'Clears' $2.67. The prosperity of the business at 
this time induced the erection of many new mills and 
an increase in the capacity of the old ones. In that 
year it was estimated that no less than 450 mills 
were manufacturing shingles in Western Washing- 
ton. This resulted in great overproduction and a 
demoralization of the market, from which the indus- 
try has not recovered. At present many of the mills 
of Western Washington have shut down on account 



54 

of bankruptcy or fire. Approximately 350 mills are 
now operating. 

^'During the last three or fonr years those mills 
only with strong financial backing and well estab- 
lished markets have operated with satisfactory prof- 
its. Many mills continue to run at a small margin 
of profit and in some cases the cost of production 
and the selling price about balance.'' 

This pamphlet was prepared in 1914, solely as an 
official study and having no relation to this investigation, 
and may therefore be assumed to be both accurate and 
unprejudiced. 

It is true that the manufacturers get the benefit of the 
underweight. The standard shipping weight of ' ' Stars ' ' 
is 160 pounds per thousand. The kiln dried weight runs 
from 135 to 160 pounds; and (depending on the rate) 
the underweights on ^'Stars'' will average about 12 
cents. While the drying process, if properly handled, 
does not harm the shingle, it can be carried to excess, and 
it cannot be denied that, under the fierce pressure of 
competition, added to unscientific methods of drying and 
unskilful operation as well as other conditions, the drying 
process has been by some carried to an extreme. This, 
however, is being corrected, but, looking at the result of 
this improvement from the standpoint of the manufac- 
turer, it is plain that an increased price must be secured 
to offset the lost underweight item. The manufacturers 
understand this and are engaged in a determined effort 
to maintain standards, even though temporary loss re- 
sults therefrom. Moreover, more often than not, the 
higher prices received for the shingles resulted in no 
advantage to the manufacturers, as it was but the reflec- 
tion of the price of logs, which at one time sold as high 
as $15 per thousand. Neither the public nor the con- 
sumer gains anything by erratic prices, nor does any 
lasting gain result from the fact that a manufacturer is 
not making a legitimate profit. Indeed, it is very doubtful 
if the benefit, if it is a benefit, of such rapidly changing 
prices could be passed on to the ultimate consumer at all. 



55 



(e) Cost of Manufacture. 

We have endeavored to secure accurate information 
respecting cost. Without standardized methods of book- 
keeping it is somewhat difficult to get the most satisfac- 
tory results. We have, however, endeavored to secure 
enough figures to make a fair composite statement. This, 
taken in connection with investigations made by various 
departments of the government at the command of this 
Commission, will enable it to form reasonably accurate 
conclusions. 

Necessarily the cost varies with the price of logs and 
labor. One statement rendered us by a very competent 
manufacturer shows a cost for 1913 of $1.79 per thou- 
sand; 1914, $1.74 per thousand; June and July, 1915, $1.42 
per thousand. The drop was brought about by a wage 
reduction of 20% and a reduction in cost of logs of $1 
per thousand. This manufacturer made no charge for 
interest on investment, but his cost includes taxes and 
depreciation. His average selling price in 1913 was $1.96 ; 
1914, $1.76 ; and for two months in 1915, $1.30. A straight 
shingle mill, manufacturing 10% clears and 90% stars, 
reports for 1914 a cost, not including interest or depre- 
ciation, of $1.70 per thousand ; combination mill for year 
1914, on same basis, 60% stars, 40% clears, $1.57; 
straight shingle mill, all 100% clears, same basis, $1.73; 
straight shingle mill, manufacturing premium stars only, 
same basis, $1.58. At the date of statement this mill was 
selling at $1.45 per mill basis and including underweights, 
$1.57 per thousand. Combination mill, 40% clears, 60% 
stars, cost $1.43. The foregoing costs are not from se- 
lected mills, and if the Commission desires to check the 
figures or secure more, every opportunity will be given 
it. The report of Messrs. Knapp and Johnson hereto- 
fore referred to deals with the cost of manufacture. We 
take the following excerpt therefrom, omitting detailed 
figures which are set forth in the report : 



.56 

Timber, 

' ' Cedar logs in the large sliiiigie iDrocluciug regions 
of Washington cost $8.50 to $12.00 per M feet, with 
an average of abont $10.00. One thousand feet of 
logs will average 10,000 ^ Extra *A*' or 8,000 'Extra 
Clear' 16-inch shingles. Therefore, the cost of tim- 
ber in the log for every thousand *A* shingles is 
$1.00, and for 'Clears,' $1.25. 

' ' The average price of a cord of western red cedar 
shingle bolts, containing approximately 700 feet 
board measure, is $3.50 and varies from $3.25 to 
$4.50. Bolts average 5,000 'Extra *A*' or 4,000 
'Extra Clear' 16-inch shingles per cord. Hence the 
cost of timber in bolt form for every thousand *A* 
shingles is 70 cents and for 'Clears' 871/2 cents. 

Manufacturing. 

"The following tabulations give the cost of pro- 
duction at representative shingle mills, using logs 
or bolts as raw material. The costs are based on 
wages paid in Western Washington and are the aver- 
age for that region. The fixed charges include main- 
tenance, interest, insurance, taxes, depreciation, of- 
fice expenses and night watchman. 

Mill No. I. 

(Log Mill) 

Cut of mill per day 200,000 shingles 

Output 1910 50,000,000 

Grades— 50"% "Stars," 50% "Clears." 
Average cost of logs — $10.00 per M feet. 
Cost of timber (50% "Clears," 50% 

"Stars") $ 1.121/0 

Labor, etc My^ 

Total cost of production $ 1.79 

Average selling ]3rices (50% "Stars," 

50% "Clears") 1.86% 

Total cost of production 1.79 

Xet manufacturer's profit $ .07% 

Total annual earning (50,000,000 shingles) 3,750.00 



57 

Mill No. II. 
(Log Mill.) 

Cut of mill per clav 190,000 sliiiigles 

Output 1910 \ 47,690,000 

Grades— 60% "Clears," 35% "Stars,'' 5% "Culls." 
Average cost of logs — $10.00 per M feet. 
Cost of timber (60% "Clears," 35% 

"Stars," 5% "Culls") .$ 1.15 

Labor, etc , . . . .67 

Total cost of production $ 1.82 

Average selling prices (35v(: "Stars,'' 

60% "Clears," 5% "Culls") 1.901/4 

Total cost of production. 1.82 

Net manufacturer's profit $ .08^/4 

Total annual earning (47,690,000 shingles) 3,934.42 

Mill No. III. 

(Bolt Mill) 

Cut of mill iDer day 110,000 shingles 

Output 1910 20,000,000 

Grades— 70% "Clears," S0% "Stars. 
Average cost of bolts — $0.75 per 1,000 shingles. 

Cost of bolts per 1,000 shingles $ .75 

Manufacturing costs, etc 1.07 

Total cost of production 1.82 

Average selling price (1910), 70% 

"Clears," 30% "Stars" 1.941/4 

Total cost of production 1.82 

Net manufacturer's profit $ -121/4 

Total annual earning (20,000,000 shingles) 2,450.00 

Mill No. IV. 

{Bolt Mill) 

Cut of mill per day. 70,000 shingles 

Output 1910 17,722,000 

Grades— 65% "Clears," 30% "Eurekas," 5% 

"Culls." 
Average cost of bolts — $3.50 per cord. 
Cost of raw material ("Clears" 65%, 

"Eurekas" 30%, "Culls" 5% $ .95 

Manufacturing cost, etc. . .82% 

Total cost of production $ 1.77% 



i i 
? ? 



58 

Average selling price (all grades manu- 
factured) $ 2.021/2 

Total cost of production 1.77% 

Net manufacturer's profit $ .241/2 

Total annual earning (17,722,000 shingles) $4,341.90 

Mill No. V. 

{Bolt Mill.) 

Cut of mill per day 100,000 shingles 

Output 1910 20,000,000 

Grades— 60% '^ Clears," 40% ^' Stars." 

Total cost of production $ 1.73 

Average selling prices (60% ''Clears," 

40% ''Stars") I.9O1/4 

Total cost of production 1.73 

Net manufacturer's profit $ .171/4 

Total annual earning (20,000,000 shingles) $3,550.00 

There is no great difficulty, however, in determining 
an average price. One manufacturer may use bolts, an- 
other logs ; one may operate a combination mill, another 
a straight shingle mill. And, while there will always be 
some variation, there is no mystery bound up in this ques- 
tion. A certain number of shingles are manufactured 
from logs, or bolts, and wages paid about the same. So, 
taking the matter on any basis desired, it is hardly a mat- 
ter of doubt that at this time the shingle business as a 
whole is unprofitable, if indeed it is not being conducted 
at an actual loss. 

(f) Wages. 
When confronted with conditions such as have been 
described, a manufacturer faces one of two alternatives 
— closing down or reducing cost. For obvious reasons, 
no manufacturer voluntarily closes down. The reason 
may be briefly expressed, — '*It costs too much." Over- 
head, loss of business, depreciation and sundry expenses 
all go on. The shingle manufacturer has in reality two 
ways open to him to reduce cost, — ^price of raw material 
or wages. The price of logs is largely beyond his control. 



59 

and, while depressed business affects the price to some 
extent, the shingle manufacturer, because of the fact that 
he cannot get a sufficient supply of logs locally unless 
there is a market for fir logs, is handicapped, and is 
forced to go to British Columbia for his supply if he is 
to continue making shingles. Here, as against his British 
Columbia competitor, he is met with an export duty of 
from $1 to $2 per thousand and a towing bill of about $1 
per thousand or more. The wage scale is more or less 
within his power to fix; that is, he cannot be compelled 
to operate. The result has been a reduction in labor cost 
between 1913 and 1915 of about 6 cents per M feet. This 
on a cut of say eight billion shingles means a loss to labor 
of about $480,000 per annum. 

We submit four tabulations of wages for 1913 and 1915 
which we are assured are representative of the general 
situation. 

WAOES PAID LABOR FOR YEARS 1913 AND 1915. 
4-Machine Mill 

1913. 1915. 

Sawyer 17%cperM 15c 

Packer 9c '' '' 8c 

Filer $6.75 per day $6.00 

Car Loader 2.50 '' '' 1.75 

Engineer 3.00 '' " 2.75 

Cut-ofeMan 3.50^^ '' 3.00 

Tally Man 2.75 " '' 2.50 

Fireman 

Other Labor 2.75 '' '' 2.00 

8-Machine Mill. 

1913. 1915. ' 

Sawyer 17c&19cperM 13c&14c 

Packer 9cperM 8c 

Filer $ 5.00per day $ 5.00 

Car Loader 2.25'* '' 1.75 

Engineer 125.00 '' mo. 100.00 



60 



Cut-off Man 



3.00 



day 



Tally Man 2.25 '' ' 

Fireman 2.75 

Other Labor 2.25 '' ' 

:^6 -Machine Mill. 
1913. 

Sawyer 16cper M 

Packer 9c '^ '' 

Filer $7.50per claT 

Car Loader 2.50 '' 

Engineer 3.50 '' 

Cnt-off Man 4.00 '' 

Tally Man 3.00 '' 

Fireman 2.75 '' 

5-Machine Mill 
1913. 

Sawyer 16cperM 

Packer 9c ^^ '' 

Filer $5.25 per day 

Car Loader 2.50 '' '' 

Engineer 3.00 '^ '' 

Cut-off Man 2i4cper M 

Tally Man . $3.25 per day 

Fireman 2.50 '' '' 

Other Labor 2.50 '' '' 



2.50 
2.00 
2.25 
1.75 



1915, 
12c per M 

7yocperM 
$6.00 per day 

2.00 '' 

2.75 '' 

3.00 '' 

2.25 '' 

2.25 '' 



1915. 
13c 

7c 
$4.75 

2.00 

2.00 

2.75 per day 

2.25 

2.00 

1.75 



(fl) Qualitij of Product. 

Something has been said about the better quality of 
the shingles produced in British Columbia as compared 
with those made in the L^nited States. This situation is 
not generally understood, and it is not impossible that 
an erroneous conclusion is being drawn from a very gen- 
eral statement. It is true that generally British Columbia 
shingles are of higher grades than those manufactured 
on this side of the line. It is not true that we do not make 
as good shingles as they do, — we do, and we can make 
all that the market will absorb. 



61 

On the other hand, little thought seems to be given to 
the reasons tending to the making of the higher grade 
shingles in British Columbia. "While every manufacturer 
desires to make a good article, the manufacture of high 
grades can be carried on generally only where raw mate- 
rial and manufacturing cost are cheap and waste is but 
little considered. It is obvious that to produce the higher 
grade shingles only higher grade material can be used, 
and higher cost follows. It is nothing to the discredit 
of the manufacturer on the American side of the line 
that he produces large quantities of a good article at a 
reasonable price. No one can truthfully say that our red 
cedar shingles properly laid will not make the very best 
roofing. We are not discussing packing or other elements 
of appearance, which are important from a selling stand- 
point, but the merit of the article per se. There is neces- 
sarily a large use for a good, well made shingle at a rea- 
sonable price, as against an extra fine shingle for par- 
ticular uses. All kinds of shingles are made in the 
Pacific Coast states, and it would seem that, as concerns 
public policy and the prevention of waste, the shingle 
industry in those states has been working on right lines. 
Indeed, there is very direct evidence that even now the 
tendency in British Columbia is toward a change in this 
respect. The largest mill in that Province is said to be 
making stars only. If this continues, it would seem that 
the effect will be still further to stimulate and increase 
the importation of shingles, and make the domestic prob- 
lem the more difficult. From the report of Messrs. Knapp 
and Jackson it may be seen how the character of the 
output is controlled by perfectly natural causes other 
than the demand. We quote from this report as follows : 

About 95% of the output of western red cedar 
shingles is confined to two 16-inch grades : ' ' Extra 
Clear," a thick shingle, constitutes 40%, and ''Extra 
*A*," a thin shingle, 55%. The remaining 5% is 
divided among other grades, mostly 18-inch ''Per- 
fections" and "Eurekas," 16-inch "Standard A" 



62 

and dimension shingles of special brand and fancy 

butts. 

Shingles manufactured in Eastern "Washington 
and Idaho are graded as No. 1 and No. 2 and are con- 
sumed almost entirely near the point of production. 
They conform to the ''Extra Clear" and ''Extra 
*A*," grades of Coast shingles. 

The use of the inferior portions of cedar logs and 
the employment of block machines by combination 
mills results in a relatively small percentage of high 
grade shingles. Combination mills supply about 
25% of the output of cedar shingles; they produce 
15% of the "Extra Clears,'^ 35% of the "Stars,'' 
and 10% of other grades, largely "Standard A." 
Mills making shingles only, cutting logs and bolts 
and running all raw material into shingles, contri- 
bute 75% of the output, including 85% of the 
"Clears," 65% of the "Stars," and 90% of the other 
grades of shingles manufactured. 

The thick shingles, "Extra Clear," are generally 
utilized in established communities for permanent 
work and are comparatively high priced. They find 
their principal market in the populated regions of 
the Middle "West and the Eastern states. The thin- 
ner grade, "Extra *A*," is consumed in the West 
and Southwest where the country is being built up 
and where temporary or semi-permanent uses make 
a cheaper shingle desirable. The 18-inch shingles, 
"Perfections" and "Eurekas," are used largely in 
the Eastern states for permanent work. 

(h) Import Statistics. 

Data from statistical abstract of the U. S. Bureau of 
Foreign and Domestic Commerce, showing import of 
shingles from British Columbia for fiscal year ending 
June 30th, 1915 : 



Year. 





Thousand 




No. 


Tariff 


Shingles 


Value 


Cars 


1903 30c 


724,131 


$1,494,906 


3621 


1904 30c 


770,373 


1,602,999 


3852 


1905 30c 


758,725 


1,581,421 


3794 


1906 30c 


900,856 


1,852,612 


4504 


1907 30c 


881,003 


1,940,001 


4405 


1908 30c 


998,081 


2,379,242 


4990 



63 

1909-8/5 tariff raised to 

50c 1,058,363 2,500,398 5292 

1910 50c rate 762,798 1,795,397 3814 

Thousand No. 

Tariff Shingles Valne Cars 

Year 1911 50c rate 642,582 1,387,743 3213 

1912 50c '' 514,657 1,205,327 2523 

1913 50c ^' 560,297 1,399,751 2801 

1914 * 50c ^^ 149,474 398,925 747 
1914** Free 745,564 1,791,245 3728 

1915 Free 1,487,116 3,104,698 7436 

Note: * These figures represent shingles shipped in 
from July 1st to October 3rd, 1913. 
** These figures represent shingles shipped in 
from October 4th, 1913, to June 30th, 1914. 
Duty removed October 4th, 1913. 

TAEIFF ON ROOFING SUBSTITUTES. 

Roofing Felt 5% ad valorem 

Slate Roofing 10% 

• Galvanized Iron 15% ^^ 

Tile 30% 

(i) Summary. 
It could not be expected of a brief of this character 
that it should enter into the detail of manufacturing, dis- 
tribution, etc. ; but rather that it should give as concretely 
as possible facts on which the Commission can rely in 
considering conditions and, if possible, discovering some 
way to help the manufacturers remedy the situation. 
More or less has been said of close-downs. Under exist- 
ing conditions close-downs cannot be avoided. It is said 
that, in "Washington alone, there are 1,200 machines with 
a combined capacity of 50,000 carloads per year. As the 
greatest number of carloads ever shipped in any one year 
was about 40,000, it is clear that periodical close-downs 
are inevitable. Since production is increasing in British 
Columbia, with the United States its best and nearest 
market, it seems plain that, unless there is a great in- 
crease in the demand, before long there will be fewer 
mills and less production in the Pacific Coast states. 



64 

The foregoing statement places before the Commission 
in reasonably concrete form the situation with respect 
to the shingle indnstry in the Northwest. There is no 
pretense that we have gone into minute detail as to every 
feature of the business. The Commission has at its com- 
mand statistics which have been carefully gathered by 
reliable men, and it would serve no purpose to burden 
the records with a reprint of what they already have. 

The industry has its defects and faults, some inherent 
and unavoidable, some of which could and should be cor- 
rected by those engaged in it. Some of these, as is the 
case with lumber, are subject only to state control; but 
such matters as better manufacturing, better packing, 
better merchandising, standardization of grades, better 
methods of marketing, standardization of accounts, and 
the like, are solely in the hands of the manufacturers 
themselves. This Commission cannot undertake to oper- 
ate the shingle mills of the West. On the other hand, in 
certain directions the Commission may be of some assist 
ance. It may indicate to what extent co-operation be- 
tween those engaged in the industry would lead to better 
results. Clearly something should be done in this direc- 
tion, for no one can view with satisfaction the chaotic and 
unstable state of this industry in the past. Such a condi- 
tion is of benefit to no one. Other factors appear with 
which this Commission may not be able to deal. But the 
shingle manufacturer, who must face these problems and 
in some way solve them has, to every reasonable extent, a 
right to rely upon the sympathetic interest of his govern- 
ment and of its agencies. There is no question but that 
the government agencies of his chief competitor are 
doing and will do everything possible to further that com- 
petitor 's interest, and this assistance is a powerful factor 
to be reckoned with. The whole question is a serious and 
complicated one ; and we feel sure that -the members of 
this Commission will be glad to lend their aid in bringing 
it to a satisfactory issue. 



65 

(5) Matters More or Less Under the Control of the Manu- 
facturer and Inherent in the Industry. 

(a) Introduction. 

Thus far much of the discussion has been confined to a 
consideration of the past and of existing conditions. It 
would be well, therefore, before we take up the question 
of what governmental agencies may do upon the basis of 
past experience to attempt to forecast the course which 
those engaged in the industry are to follow if it is to be 
placed on a sound business basis. 

The lumber industry is not so unique as not to be 
judged by rules based on experience and reason, or as 
not to respond to universal laws of economics and busi- 
ness. It has had its ups and downs, its experience and 
lessons from which deductions may be fairly drawn, 
which will be of value in forming conclusions as to its 
future and in avoiding the rocks wdiich have wrecked so 
many enterprises in the past. While we do not wish to 
burden the Commission with a multiplicity of tables and 
statistical data, a brief review of some important factors, 
some of which have heretofore been discussed, and others 
of which may be dwelt on hereafter, may shed some light 
on the future course of the industry. 

(h) Number of Mills — Production — Consumption. 

Generally speaking, we rely for our statistical infor- 
mation on the Bureau of the Census, the Department of 
Commerce, the Department of Agriculture, and the For- 
est Service. The exact number of saw mills in the United 
States is probably not known. It is safe to say, how- 
ever, that big and little they number 48,000 to 50,000, or 
possibly more. The most accurate figures we have are 
those secured by the agents of the Bureau of the Census 
in 1899 and 1909. In 1899 there were in the United 
States, in active operation, 31,833 mills; in 1909, 48,112. 
Since 1909 the number of active mills reporting by mail 
to the Forest Service is much less than the 1909 figure. 



66 

but since those so reporting are the larger mills, and the 
smaller mills cut but a relatively small proportion of the 
output (as a Forest Products Circular of May 12, 1913^ 
puts it), '^the variation in the number of such mills re- 
porting is of minor significance in determining the pro- 
duction for different years." The following tabulation, 
taken from Bulletins issued by the Department of Com- 
merce December 30, 1913, gives the only figures available 
as to the number of mills and their output. In exam- 
ining the tables it should be borne in mind that, as stated 
by these Bulletins, ^ ^ statistics for different years are not 
exactly comparable on account of the varying number of 
small mills which made returns in the different years," 
and that the returns for 1899 and 1909 are exceptionally 
complete, it being stated by Mr. E. S. Kellogg (p. 317, 
^'Lumber and Its Uses") that the 1909 canvass was by 
far the best ever made. 

Lumber- Lath and Shingles — Number of Active Mills 

Reporting and Quantity of Products 

for Specified Years: 1899 to 1912. 

Number 
Year of active Lumber Lath Shingles 

Mills (Quantity, M (Quantity, (Quantity, 
reporting feetb.m.) thousands) thousands) 



1912.. 


. 29,648 


39,158,414 


2,719,163 


12,037,685 


1911.. 


. 28,107 


37,003,207 


2,971,110 


12,113,867 


1910.. 


. 31,934 


40,018,282 


3,494,718 


12,976,362 


1909.. 


. 48,112 


44,509,761 


3,703,195 


14,907,371 


1908.. 


. 31,231 


33,224,369 


2,986,684 


12,106,483 


1907.. 


. 28,850 


40,256,154 


3,663,602 


11,824,475 


1906.. 


. 22,398 


37,550,736 


3,812,807 


11,858,260 


1904.. 


. 18,277 


34,135,139 


2,647,847 


14,547,477 


1899.. 


. 31,833 


35,084,166 


2,523,998 


12,102,017 



The latest report we have on mills and production is 
Bulletin No. 232, Department of Agriculture. It shows 
for 1913 21,668 active mills reporting, and the quantity 
of lumber cut in M feet B. M. as 38,387,000. The report 
also states that in 1913 the number of active mills in- 
cludes only those cutting lumber, while figures for other 



67 

years include mills cutting lath and shingles as well as 
lumber. 

Since 1913 there has been a decline in lumber produc- 
tion and even the reduced supply was in excess of the 
demand. 

(c) Capacity of Mills. 

The capacity of the mills is far in excess of present 
output and on the existing basis of consumption is a 
standing menace to stability as well as to fairness of 
prices. The exact amount of lumber which the mills of 
the United States can produce, of the exact relation of 
present output to capacity, is not known. Enough, how- 
ever, is known to show that the mills can produce far in 
excess of the present output. 

At the Tacoma hearing (p. 53) Mr. Babcock explained 
this feature as respects "Washington and Oregon. He 
showed that the 10-hour potential capacity of the mills 
in Oregon and Washington west of the Cascade Moun- 
tains is 6,915,456,000 feet. Note that this is a 10-hour 
basis, and night and day running is not uncommon. Ac- 
cording to his figures the cut in 1912 for the territory 
named was 4,965,935,000 feet; in 1913, 5,640,520,000; in 
1914, 4,530,000,000 feet. As to this territory, no doubt 
exists of the ability of the mills to increase the output 
enormously. Mr. Toole's statement at Spokane shows 
that the same facts exist with respect to the mills of the 
Inland Empire. At page 10 of the record it is stated that 
the annual lumber producing capacity of the mills of the 
Inland Empire, based on a run of 200 days per year and 
two shifts, is about three billion feet. Figures com- 
piled by the Forest Service show that production has, 
been less than 50% of this theoretical capacity for each 
of the past ^ve years. Mr. Toole also stated (p. 10) that 
figures compiled by the Association for mills reporting 
to it, show that on the basis of taking the best annual cut 
of each plant for the past and assuming this as its ca- 
pacity the production of these plants has averaged for 



6S 

^ve years about 65% capacity. In a carefully prepared 
paper by Mr. E. S. Kellogg, published in the '' Lumber 
World Eeview," January 25, 1912, p. 28, it is stated: 

''The cutting capacity of the saw mills in the 
United States is far in excess of the market demand 
for lumber. Just how much potential production ex- 
ceeds consumption can not be said, but it certainly 
amounts to from 25% to 50%." 
He then discusses a case of forty mills in Wisconsin and 
northern Michigan with which he was familiar and says : 

' ' Allowing for break-downs and necessary repairs, 
these forty mills should be able to saw in eight 
months all the lumber they sold in 1910, and that they 
sold all the product that could be marketed is proved 
by the prices obtained. This means that on the aver- 
age these mills were either idle for four months of 
the year or that they operated at less than full 
capacity for more than eight months." 
We have not before us at this moment the figures spe- 
cially applicable to the Yellow Pine capacity, but we are 
advised that the same situation obtains there as else- 
where. The Forest Service should be able to shed fur- 
ther light on the subject. The conclusion that capacity 
is far in excess of present output or demand is beyond 
question based on facts. 

(d) Largest Lumber Producing States. 
It may be of interest to have in mind the five largest 
lumber producing states since 1909. 

No. of Saw Lumber sawed 

State Mills Reporting (M Board Feet) 

1909 

Washington 1143 3,863,000 

Louisiana 658 3,552,000 

Mississippi 1795 2,573,000 

North Carolina .... 3307 2,178,000 

Arkansas 2060 2,111,000 

1910 

Washington 951 4,097,000 

Louisiana 497 3,733,000 

Mississippi 1061 2,122,000 



69 

Oregon 574 2,084,000 

Wisconsin 872 1,891,000 

1911 

Washington 777 4,004,000 

Louisiana 502 3,556,000 

Mississippi 908 2,041,000 

Oregon 522 1,803,000 

North Carolina .... 2071 1,798,000 

1912 

Washington 788 4,099,000 

Louisiana 460 3,876,000 

Mississippi 952 2,381,000 

North Carolina .... 2418 2,193,000 

Oregon 480 1,916,000 

1913 

Washington 409 4,592,000 

Louisiana 408 4,161,000 

Mississippi . 679 2,610,000 

Oregon 406 2,098,000 

Texas 341 2,081,000 

The statistics since 1913 are not available. It will be 
noted that the number of active mills reporting varied 
each year, but it is believed that the figures given cor- 
rectly represent the relative rank in production. 

(e) SmoM Mills. 

That the small mill fills an important place in the in- 
dustry is shown by the following figures giving number 
of mills and output in states not ordinarily classed as 
lumber producing : 

State 1909. 1910. 1911. 1912. 1913. 

Pennsylvania .... 3,054 1,847 1,636 1,724 1,159 

New York 2,308 1,468 1,520 1,487 1,917 

Ohio 1,632 1,148 1,009 1,156 826 

Massachusetts ... 643 459 430 420 312 

Vermont 725 542 498 507 363 

Lumber Sawed (M feet B. M.) 

1909 1910 

Pennsylvania 1,462,711 1,241,199 

New York 681,440 506,074 



70 

Ohio 542,904 490.039 

Massachusetts 361,200 239,206 

Vermont 351,571 284,815 

Lumber Sawed (M feet B. M.) 

1911 1912 1913 

Pennsylvania 1,048,606 992,180 781,547 

New York 526,283 502,351 457,720 

Ohio ,.... 427,161 499,834 414,943 

Massachusetts 273,317 259,329 224,580 

Vermont 239,254 235,983 194,647 

It will be borne in mind that the 1909 figures are accurate, 
while the others are relative, covering mills voluntarily 
reporting. 

(f) Relative Output of Mills. 

While there is a very large number of small mills fill- 
ing local needs and requirements, nevertheless it is in 
the nature of things inevitable, from the standpoint of 
economy, efficiency, and location of raw material, that 
relatively few large mills supply the great percentage of 
the output. 

In 1909 28,459 mills cut i/g of the supply; 2% of the 
mills cut 43% of the output, and 1.2% of the mills cut 
1/3 of the total product. 

By Bulletin 232, U. S. Department of Agriculture, out 
of 21,668 mills reporting, 974 or 4.5% of the mills cut 
60.5% of the output. Those familiar with conditions are 
not surprised at the showing. 

(g) Kinds of Woods. 
The following tabulation will show the woods of great- 
est use in percentages to total output, including redwood 
and cedar: 

Rank 1909 Rank 1910 

Yellow Pine 1 36.6 1 35.3 

Douglas Fir 2 10.9 2 13.0 

White Pine 4 8.8 4 8.4 

Oak 3 9.9 3 8.8 

Hemlock 5 6.9 5 7.1 

Western Pine 7 3.4 6 3.9 



71 

Spruce .6 3.9 7 3.6 

Cypress 8 2.1 8 2.3 

Eedwood 1.2 1.4 

Cedar 0.8 1.0 

Rank 1911 Rank 1912 Rank 1913 

Yellow Pine 1 34.9 1 37.6 1 38.7 

Douglas Fir 2 13.7 2 13.2 2 14.5 

White Pine 3 8.7 4 8.0 4 6.7 

Oak 4 8.4 3 8.5 3 8.4 

Hemlock 5 6.9 5 6.2 5 6.0 

Western Pine 6 3.6 6 3.1 6 3.3 

Spruce 7 3.4 7 3.2 8 2.7 

Cypress 8 2.7 8 2.5 7 2.9 

Redwood 13 1.3 12 1.3 12 1.0 

Cedar 16 1.0 17 0.8 17 0.9 

The large stands of yellow pine are in the south ; Doug- 
las fir occurs in the northwestern coast states; oak is 
pretty widely dispersed, and so is white pine. Hemlock 
is a northern tree. Redwood is confined to California. 
Cedar is found throughout the United States, but the 
large stand and output is on the Pacific Coast. 

(h) Overproduction — Effect. 
We have to consider not only overproduction as a fact 
based on existing cut, but also the potential production 
which can almost instantly be made actual, and its effect. 
Based on existing consumption, all authorities agree that 
there is an overproduction and apparently no way to 
control it. The result, excepting occasionally, is de- 
pressed prices, and when the prices pick up the poten- 
tial capacity of the mills becomes actual and the increased 
output soon brings about the certain effect of reduction 
in price ; whereupon selling at or below cost is again the 
vogue. This Commission has heard the same story 
proven by unimpeachable figures from every section. 
Department of Commerce Bulletin on Lumber, Lath and 
Shingles, 1911, issued May 12, 1913, at page 3, states the 
.situation as it really exists : 

V^ Rising wholesale lumber values always bring in- 
.creased production, since many mills are operating 



72 

below capacity, and are in a position to take advan- 
tage of better market conditions. ' ' 

In Department of Connnerce Bulletin on same topic, 
1912, issued December 30, 1913, at page 4, we find tMs 
statement : 

' ^ The amount of lumber cut in a given year is de- 
termined by a number of factors of too complicated 
relationship for adequate discussion here. The chief 
of these factors is of course the actual or prospective 
demand for lumber, but a falling off in demand does 
not always bring about a corresponding decline in 
production, since many operators will prefer to run 
their mills for a time without profit, or even at a 
loss, rather than to break up the organization of their 
operating force ; and lumber manufacturing corpora- 
tions having securities outstanding may likewise find 
it necessary to operate continuously, even at a loss, 
in order to maintain an income from which to pay in- 
terest charges. The stocks of lumber produced by 
these mills during periods when the market is dull 
are of course available to meet the first demands of 
a more active market, but any sustained increase in 
prices quickly brings about an increase in produc- 
tion; whence it is apparent that the mill capacity of 
the country is considerably greater than the normal 
production. ' ' 

We take the following from an address by Mr. Graves, 
Chief Forester, published in ^^ American Lumberman" of 
May 9, 1914 : 

^'I presume that there are not less than 75,000 to 
100,000 owners of timber lands, not including small 
tracts attached to farms. It may be said that the 
majority of these timber land owners are desirous of 
operating, selling the stumpage, or selling their land 
outright. As a result of the feverish haste to cut 
and manufacture timber there was naturally an over- 
production of lumber, reaction, and demoralization 
of the market. Curtailment of output responding to 
price recessions did not, however, take place readily, 
because of the pressure to keep cutting even after 
prices had fallen. O^^^iers who had mortgaged their 
property heavily were obliged to keep on operating 



73 

in order to meet interest on tlieir obligations, main 
tain their plants, and hold their organizations. De- 
creased profits throngh a lower priced product and 
increased cost of production doubtless required these 
same men to cut a larger amount of timber than oth- 
erwise would have been needed to carry them along. 
Other o^^^iers, who, for other reasons, were finan- 
cially weak, were obliged to continue cutting. In 
many instances increased taxation has tended still 
further to force operation. Overproduction, there- 
fore, continued and a depressed market became still 
further depressed, with the consequences of local 
demoralization, numerous failures, and the various 
other results which follow depression in any indus- 
try. As long as there exists a constant pressure to 
place upon the market more timber than can be ab- 
sorbed instability mil continue. ' ' 

(i) Forced Cutting. 
It should be kept in mind that the excess production 
in many cases is really not voluntary or desired by the 
manufacturer, who realizes, better than anyone else pos- 
sibly can, the inevitable result. But conditions and causes 
over which he has no control compel a policy (if it can 
be called such) which in the end results to his loss and 
disadvantage. Mr. Graves spoke of this condition in the 
address just referred to, from which Ave take the follow- 
ing excerpt : 

''From a conservation standpoint the present sit- 
uation is an exceedingly unfortunate one. Forced 
cutting under poor market conditions means poor 
utilization, for a great deal of the low grade material 
is left in the woods. It is estimated that in some 
sections this waste is 30% greater tlian it was six 
years ago. Under such conditions the care of second 
growth and the encouragement of new growth have 
little interest for operators. Fire protection receives 
little attention except where it is necessary to pro- 
tect valuable standing timber. AA^iile owners are 
now in many sections of the country doing much 
more than formerly to protect at least their mer- 
chantable timber from fire the depletion of the sup- 
plies is going on with a rapidity which operators 



y 74 

themselves, who are practically obliged to cut with 
a great deal of waste, much deplore. It is perfectly 
clear, therefore, that both from the standpoint of 
the permanent welfare of the lumber industry and 
from the standpoint of the interests of conservation 
the country is losing. I do not need to recount to 
you the loss to the public, when a great industry is 
demoralized. It is not merely a loss to operators 
and stockholders in operating companies but a se- 
vere loss to those who are thrown out of employment 
or who have irregular employment, and an economic 
depression results which is shown in the diminished 
prosperity of whole communities. From the stand- 
point of conservation the public is suffering very 
great loss. Its existing supplies are being used up 
rapidly and wastefully because of poor utilization, 
and these supplies are not being replaced in any 
adequate way.'' 

The firm of E. E. Danaher Company of Detroit, Mich- 
igan, is employed by various banks, trust companies and 
bonding houses, to investigate and report on the opera- 
tions of lumber companies, particularly as to whether 
or not the lumber companies are cutting- the timber clean 
and in a proper manner, which is mortgaged to such 
banks, trust companies, etc. Mr. J. E. Danaher, Presi- 
dent of the Company, under date of December 14, 1915, 
writes as follows : 

**We investigated many companies in Washing- 
ton, Oregon and California, and almost without ex- 
ception were obliged to report that, owing to the low 
price at which lumber was selling the companies were 
leaving approximately 30% more timber on the lands 
than would have been left during the year 1912 ; for 
instance, when prices were better. 

^ ' The timber left in this way is an absolute waste. 
It will never pay the lumber companies to go back 
after it, even if it should not be destroyed by fire, 
which in all likelihood it will be. " 

These statements of fact are but truisms, accepted by 
everyone conversant with the business, and the tabula- 
tions submitted by Mr. Charles S. Keith, Mr, Thorpe 



75 

Babcock and others abundantly sustain them. We have, 
therefore, a condition where, although for a number of 
years the business has been unprofitable, production was 
greater than demand. 

These facts tend to show not only the absence of a 
'^ trust" but also the lack of necessity for more mills and 
more competition. These intolerable conditions within 
the industry, if unremedied, lead to such a merciless 
struggle that only the superman can survive. Public in- 
terest demands the industry. But would it not prefer 
a middle ground — one involving neither a subsidy to 
maintain in the clearly incompetent, nor pressure which 
eliminates even the competent and deserving and leaves 
success only to the accidentally strong few? 

(j) Prices. 
Necessarily the conditions outlined have a depressing 
effect on prices, and as a matter of fact the mill prices 
have been abnormally low for a series of years. Other 
than a slight spurt in 1913, since 1909 the prices have 
been generally unprofitable, and in many cases actual 
losses are shown. With prices varying from $14.45 per 
M for fir in 1910, to $10.00 or $11.00 per M' for the first 
six months in 1915, and with relatively a similar state of 
facts as to yellow pine and other woods, no demonstra- 
tion or elaboration of detail is necessary to prove that 
the manufacture of lumber during this period generally, 
has been both unsatisfactory and unprofitable. 

(k) Use Not Impaired hy Prices. 

It is not believed that the price of lumber has affected 
or impaired its use to any considerable extent. Owing 
entirely to natural causes it is somewhat higher than it 
was a number of years ago. This is not peculiar to lum- 
ber, since for about 20 years past the price of all com- 
modities has been advancing. We doubt, however, when 
all the facts are taken into account, that lumber will be 
found to have advanced as much as many other com- 



76 

modities in common use. The records of the Bureau of 
Labor bear out this statement as to prices from 1860 to 
1912. On page 149 of Bulletin 114 of this Bureau is 
given a table of the relative prices of various groups of 
commodities. Mr. Kellogg, in his work, ^'Lumber and 
Its Uses," page 161, charted the groups of commodities 
— farm products, foods, and lumber and building mate- 
rial. The result showed prices of lumber had run be- 
tween the prices of farm products and food for 50 years, 
although with neither as high nor as low points as oc- 
curred in the two other groups. It also appeared that 
the prices of Imnber and building material are relatively 
lower now than they were 50 years ago. 

(I) Cost of Manufacturing. 

The cost of manufacture, as at present conducted, is 
at about the lowest possible point. Eeductions in wages 
have been compelled through no fault of the manufac- 
turer. Either reductions or close-downs were inevitable. 
Mr. Keith pointed out how the economies that had to be 
practiced so far as labor is concerned operated in two 
ways: reduction in number employed and reduction in 
wages from 10% to 25% of those employed. The loss 
to labor was enormous, and none regretted the necessity 
which compelled it more than did the employers. With 
all the economies practiced, the tabulations show that, if 
fair allowances were made for proper charges, actual loss 
in operation resulted. Eeducing wages is neither pleas- 
ing to the employee nor does it give any satisfaction to 
the employer. It was not, however, a question of choice, 
but of necessity. No business man as a matter of choice 
cuts the wages of his employees. The laborer is worthy 
of his hire, the operator is entitled to a fair profit, and 
a satisfied employee is quite as much of an asset as a sat- 
isfied customer. Neither is it a normal condition where 
a perfectly legitimate business is not in a position for 
any length of time to pay fair and just wages and receive 
a reasonable return on the capital invested. This is not 



77 

to say that the lumber industry should be immune from 
the ordinary trials and tribulations of business or should 
be made the recipient of special f aTors ; but it should have 
a fair show — in other words, the opportunity that the 
character of the business requires. The taxation of tim- 
ber lands, which we have heretofore discussed, is a prob- 
lem in itself, but we refer to it here as one of the heavy 
and increasing manufacturing costs. 

(m) Timber Supply. 
In a general way it may be stated that the present tim- 
ber supply of the United States is estimated at 2,800 bil- 
lion feet of standing timber, covering about 550 million 
acres of forest land. The National Forests in round 
numbers aggregate about 160 million acres, chiefly in the 
Eocky Mountains and Pacific Coast States. Some cut- 
over lands have been purchased in the White Mountains 
and the southern Appalachians. There are some state 
forests, about 190 million acres in farm wood lots, and 
about 200 million acres containing about 75% of the mer- 
chantable standing timber held in private ownership. 
Without entering into an exhaustive discussion of this 
subject, it may be fairly said, even on the basis of pres- 
ent use, that there is no timber famine in sight, nor in 
our judgTQent will there be. The per capita consumption 
of lumber will unquestionably decrease, but the use of 
the log will increase, or, to put it another way, the waste 
which is and has been enormous will decrease. The waste 
expressed in dollars and cents would run into large fig- 
ures. It is difficult to estimate it accurately, but 30 fo 
would be conservative — that is, if the cut is 40 billion 
feet, 12 billion feet is wasted in securing the 40 billion. 
At the rate of even $3 per M this represents a direct 
loss of $36,000,000 for one year. It would not take many 
years at this rate to pay for a first-class navy. We be- 
lieve the effort to protect and conserve our forest re- 
sources should be steadily maintained. We believe they 
will be, and with a better understanding of the value and 



78 

use of the forests the efforts of the Forest Service will 
be more and more appreciated. In certain sections for- 
ests are easily reproducible. Through the working of 
economic laws it would seem that ultimately the forest 
lands will be largely owned by the Government. After 
the present stand is cut, it is hardly probable that pri- 
vate owners will be justified in engaging in reforesting 
the cut-over lands on a large enough scale to serve public 
interests, and while there may be many exceptions if tax 
reform and other encouragement is given, generally 
speaking the investment would be for too long a time, 
the hazard too great, and the rate of return too low for 
individuals to engage in it extensively, but the Federal 
and State governments can and will do so. Considering 
this factor fairly, we do not believe that the menace of a 
shortage of timber enters into our present calculations. 

(n) Future Prices. 

An analysis of the facts leads to the conclusion that 
the manufacturer cannot in the future hope to receive 
high prices for his product. His efforts will lie in the 
direction of endeavoring to bring about a condition where 
fair and stable prices will be the rule. Many factors en- 
ter into this phase of the subject, not the least of which 
is the effect of the substitute on the price the manufac- 
turer can secure for his lumber. In other words, the old 
days when ^'lumber was lumber,'^ ^^take it or leave it,*' 
are past, and the lumber manufacturer of today, if he is 
to succeed, has to be a merchant among merchants and 
pursue modern methods of merchandising against the ag- 
gressive and intelligent competition, not only of other 
woods, but of substitutes as well. We are not asking this 
Commission, directly or indirectly, to wage war on sub- 
stitutes in order to further the interests of lumber. The 
substitute can only prevail as it demonstrates its useful- 
ness and ability to fill the needs and requirements of 
trade. Fair competition will determine the contest as be- 
tween wood and its substitutes. Our only purpose in re- 



79 

f erring to the matter is to bring out the e:ffect of the sub- 
stitute on the use of wood as preliminary to the sugges- 
tions hereafter to be made. 

(o) Substitutes — Their Effect on Use and Price of 

Lumber. 

From the Bulletin issued by Department of Commerce, 
May 12, 1913, on ^^ Lumber, Lath and Shingles,'' we take 
the following excerpt (p. 3) : 

^^ Rising wholesale lumber values always bring in- 
creased production, since many mills are operating 
below capacity and are in a position to take advan- 
tage of better market conditions. Marked increase 
in the demand for lumber followed by a rapid rise 
in values is problematical, since wood is now being 
forced to compete with substitutes in many of its 
present uses. Over half of the lumber cut goes into 
buildings and rough construction, about one-tenth 
into boxes, a twentieth into car construction, and a 
fourth into other uses. Concrete, steel, fiber, and 
other materials are competing in all of these princi- 
pal avenues of consumption and in many minor ones. 
Thus, in a general way, increase in the value of lum- 
ber is limited in its leading channels of use. Fur- 
thermore, the margin by which rising values may 
stimulate increased total production is extremely 
narrow and likely to be offset by other factors, such 
as increased cost of production. If rising stumpage 
values, increasing costs of production, and other in- 
fluences cause lumber prices to advance, the use of 
substitutes for wood will increase and the total vol- 
ume of lumber consumed annually will tend to de- 
crease." 

From the Bulletin issued by Department of Commerce, 
December 30, 1913, on ^ dumber. Lath and Shingles," we 
take the following excerpt (p. 4) : 

*^The greater part of the lumber produced goes 
into buildings and rough construction, about one- 
tenth into packing boxes, crates, etc., and much 
smaller proportions into car construction, furniture, 
vehicles, and a great variety of other uses. There 
is a strong tendency toward more permanent con- 



80 

stmctioii in building and toward the use of materials 
other than wood in many other industries, and the 
increasing competition of other materials has doubt- 
less operated to restrict the demand for lumber and 
to retard the general rise in its price which might be 
expected to accompany the gradual exhaustion of the 
available timber supply. ' ' 

On May 5, 1914, Mr. Howard F. Weiss, director of the 
United States Forest Laboratory at Madison, Wisconsin, 
delivered an address on ''The Merchandising of Lumber 
from the Standpoint of the Scientist'' before the annual 
meeting of the National Lumber Manufacturers' Asso- 
ciation. (Eeported in full, "American Lumberman, May 
9, 1914.) Mr. Weiss commenced his address by saying: 

"A re^T.ew of the lumber situation as it exists 
today is not encouraging; the demand for products 
is weak, prices are low, and there is every indication 
of overproduction and excessive waste in opera- 
tions.'' * *= * " The annual lumber output in the 
ITnited States approximates 40,000,000,000 feet, 
about 70% of which is used for buildings and for gen- 
eral construction. " * * * "Most of this lumber 
now comes into direct competition with other building 
materials such as iron, brick, tile, and cement." 

He then proceeds to review the output of certain com- 
modities in the L^nited States for a series of years from 
which we take the f ollomng : 

Pig Iron 

Avg. Price per 
Year Quantitv Long Tons Long Ton 

1890 9,202,703 $16.43 

1910 27,303,567 15.57 

The output has nearly trebled since 1890, and the unit 
price decreased slightly. 

Brick 

Avg. Price per 
Year Quantitv — Thousands Thousand 

1895 6,017,965 $ 5.25 

1910 9,221,517 5.99 



81 

Cement 

Avg. Price per 
Year Amount by Barrels Barrel 

1890 335,500 $ 2.09 

1910 76,549,951 .89 

It will be noted ''over 230 times as much cement is now 
manufactured in the United States each year as was pro- 
duced in 1890 and the output is increasing. ' ' In the mean- 
time the price is steadily decreasing. 

Sand and Gravel. 
Quantity — 
Year. Short Tons. Price per Ton. 

1902 1,848,000 $0.85 

1910 69,410,000 .30 

Lumber Production. 

Production Av. Value per M, 

Year. in M Feet. Board Measure. 

1900 35,084,166 $17.13 

1909 44,509,761 15.38 

1910 40,018,282 15.30 

1912 39,158,414 15.35 

It should be noted that, as heretofore stated, 1900 and 
1909 are the more accurate figures, whereas the other 
years cover output of mills reporting only. 

Mr. Weiss states : 

''What all lumbermen are interested in at present 
is an increase in price for lumber. It is the general 
feeling that lumber is not being sold at its true value. 
This question is commonly asked: 'How can the 
price of lumber be materially increased?' Please 
bear in mind that 70% of our lumber according to 
actual survey comes into direct competition with 
other building materials whose price shows no 
marked advancement, but whose output is increas- 
ing. ' ' 

Continuing his discussion, Mr. Weiss calls attention to 
the findings of a special committee appointed by the 
American Railway Engineering Association in 1912 to 
determine the extent of the substitution of steel for wood 



82 

in the construction of passenger cars. This committee 
circularized 247 railroads operating 228,000 miles of 
track. A summary of its findings is here given: 

Total No. Per Cent Per Cent Steel Per Cent 

Year. Constructed. Steel. Underframe. Wood. 

1909 1,880 26.0 22.6 51.4 

1910 3,638 55.4 14.8 29.8 

1911 3,756 69.0 20.3 20.7 

1912 2,660 68.7 20.9 10.4 

Jan., 1913, 
under con- 
struction. 1,649 85.2 11.5 3.3 

It will be noted that in 1909 about 51% of the passen- 
ger cars constructed were of wood, while in January, 
1913, only 3.3% of these cars under construction were of 
wood. Mr. Weiss gives it as his opinion that the same 
tendency from wood to steel is going on in construction 
of freight cars. 

Certain data submitted recently in the Western Pas- 
senger Rate case before the Interstate Commerce Com- 
mission, 37 I. C. C. 1, decided December 7, 1915, shows 
the tendency to the steel car on the western as well as on 
the eastern roads. This case involved passenger fares 
over 47 roads operating west of Chicago. In an exhibit 
covering 42 of these roads (p. 36) the following facts 
appear : 

^*In 1906 there were 11,899 wooden cars, 60 steel 
underframe cars, and no all steel cars in service. In 
1914 there were 13,030 wooden cars, 1,636 steel un- 
derframe cars, and 2,292 all steel cars in service.'' 

A statement was submitted (p. 377) by the Atchison, 
Topeka & Santa Fe system ^^ reflecting what has been 
done in the past 10 years or more to increase the safety 
and add to the general comfort of the traveling public. ' ' 
From this statement we take but two sentences : 

^^Not many years ago wooden underframe open 
platform cars were the best that any line offiered. 
* * * The next step was the steel underframe; 
the final step the all-steel car. ' ' 



83 

According to Forest Service figures as stated by Mr. 
Hazen, there were 217,000 freight cars built in 1913 — of 
these, 27% were steel underframe and wooden superstruc- 
ture; all steel except sheathing and decking, 15%; all 
wood box cars, 5%. About 42%, largely ore and gondola 
cars, were of all steel construction. 

Eeturning to Mr. Weiss ' paper, after showing that, ac- 
cording to Dr. Fernow, the consumption of wood (saw 
logs) per capita in the United States is 85 cubic feet, 
in Germany 15 cubic feet, and in England 13 cubic feet, 
he asks this question : 

**How can we make the lumber business profitable 
without materially increasing the general price of 
lumber f 

We quote briefly certain answers Mr. Weiss makes to his 
own question : 

'^7 feel that the hey to the situation lies in better 
methods of manufacturing and selling lumber/^ 

He then elaborates this answer, and in discussing how 
waste could be saved says : 

''In present lumber operation, lumber, which rep- 
resents in general less than 40% of the total volume 
of the forest, must bear the entire expense of main- 
taining these operations. Is it fair to expect lumber 
to do this? Suppose the same principle held sway 
in the packing industry. Only those of us who are 
ultra rich could afford to eat beefsteak. I wrote to 
the chief chemist of Armour & Co. a few days ago 
and asked him to what extent the utilization of by- 
products in the packing industry was a myth or a 
reality. This is the reply he gave me : 

'' 'I may say that you are quite correct in your 
assumption that the various parts of the animaPs 
carcass aside from the meat and hide are utilised 
more or less completely, yielding such products as 
beef extract, pharmaceutical preparations such as 
pepsin and various ductless glands, lard, oleomar- 
garine, etc. Among the inedible products are fer- 
tilizer, lubricating and soap fats ; bones serving for 
the manufacture of buttons, pipe bits, etc.; horns 



84 

serving for tlie mamifacture of combs; intestines 
making gut strings for the manufacture of tennis 
rackets and musical instruments ; blood albumin for 
finishing leather and printing cotton goods, etc' 

^'Please note the variety of industries that are 
securing materials from the packing industry. Wood 
is just as promising a raw material as heef. Lum- 
bermen should make a far more determined effort to 
appreciate this. Waste should he converted into 
marketable products and compelled to relieve lum- 
ber by bearing a part of the operating cost. When 
this condition is attained it will not be necessary to 
bolster the price of lumber sky-high in order to make 
what is left of the lumber industry profitable." 
(Italics ours.) 

Taking up the question of timber holdings he said : 

'^I now come to a very important angle of our 
problem and one which must be solved if the above 
suggestions are to have a real punch and yield re- 
sults. It is this : There must be better consolidation 
of timber holdings, better unity of action, and a bet- 
ter associated effort among lumbermen." 

He then discusses and quotes portions of the speech of 
Charles E. Van Hise, President of the University of 
Wisconsin, before the Chamber of Commerce of the 
United States of America, February 12, 1914, entitled 
^'Concentration of Industry in the United States of 
America." We quote therefrom as follows: 

'''For timber the same situation exists as for 
bituminous coal. Extreme competition has been en- 
forced through action against various lumber manu- 
facturers ' and dealers' association. In consequence 
of this the cutting of timber is now being carried on 
so that the wastes in operation are excessive. For 
only by getting the timber on the market at the low- 
est rates, regardless of waste, is it possible to handle 
the material so as to meet market conditions without 
loss. This is the lamentable situation created by the 
law in regard to a resource which will last at the 
present rate of exploitation for scarcely more than 
fifty years.' 

"After pointing out these conditions and ten- 



85 

dencies, President Van Hise suggests the following 
corrective measures : 

'' ^My proposal, gentlemen, is neither regulated 
competition nor regulated monopoly, but reduction 
of competition, prohibition of monopoly, permission 
for cooperation, and regulation of the latter. * * *^ 
' ' The keynote of his solution is sounded in the fol- 
lowing quotation: 

^' ^My proposal is that restraint of trade either by 
combination or contract and cooperation in limita- 
tion of output, division of territory or fixing of 
prices, be prohibited as far as they are inimical to 
the welfare of the public. Not only so, but it may 
be wise to make a presumption that actions of cor- 
porations along the above lines are inimical to the 
welfare of the public until approved by a commission. 
But when any act of cooperation has been approved 
by the appropriate commission it should be free from 
attack. By this simple expedient the situation be- 
comes cleared. Cooperation for all classes of busi- 
ness should be allowed to continue so far as it is not 
inimical to the public welfare. * * *' 

^'It is out of the question to practice most efficient 
methods of utilizing waste in our timber regions on 
the magnitude with which we do business in this 
country unless there is enough waste assembled at 
one point to make the establishment of a by-product 
plant practical. A sawmill can be erected to operate 
on a 10-year supply of timber, or even one year, and 
abandon the operations with a profit, but this can 
not be done with a by-product plant. Such plants 
demand not only a comparatively large amount of 
material with which to operate but an amount which 
must be supplied for years to come. Some plants 
are, therefore, a stimulus to the perpetuation of for- 
ests and industry, and in this respect are markedly 
different from the majority of sawmills now exist- 
ing." I 
We have quoted more from the paper of Mr. Weiss 
than we intended to, but it is so apt, although written 
nearly two years ago, and is so much in accord with views 
we intend to submit, representing as it does the ideas of 
one not personally interested, that we feel we are justi- 
fied in quoting from it at length. 



86 

It is certain that substitutes are being used for every 
conceivable purpose, and in many instances where at one 
time lumber would have been the only product considered. 
We now have the fibre packing case, cement posts, roof- 
ings of all kinds, building and finishing materials, etc., 
etc. Indeed, one today can build a house from founda- 
tion to roof and not have to use one foot of lumber. There 
are, however, some interesting sides to this phase of the 
question. It is not without significance that many of the 
substitutes are made to imitate as closely as possible the 
wood whose place they are taking. Nor is it without sig- 
nificance that notwithstanding the terrific onslaught on 
wood by its competitors it still maintains itself as one of 
the greatest industries of the country. This alone is a 
most hopeful sign. Mr. Kellogg in his work, ^^ Lumber 
and Its Uses," shows that notwithstanding the lowering 
price of substitutes for building purposes (p. 165) *Hhe 
cost of brick veneer construction is 20% to 25% greater 
than of frame construction, and that solid brick construc- 
tion is about 40% more expensive than frame construc- 
tion," and (p. 166), *^The builder of wood can point to 
numberless instances of wooden siding on houses which 
has given good service for 50 years or more, and to many 
cases of durability of more than 100 years. ' ' 

(p) Changes in Character of Output. 
There is no doubt that the past few years have wrought 
decided changes in the form the output takes. At one 
time timbers represented a large percentage of the cut. 
According to Forest Service statistics, the percentage of 
output of timbers to the cut decreased 50% from 1909 to 
1915. At one time it was an accepted fact among lum- 
bermen that in normal times the railroads consumed from 
30% to 40% of the lumber cut, and that prosperity in the 
lumber industry followed good times for the railroads. 
This condition no longer exists. Forest Service figures 
for the year 1910 show use by the railroads of but 9.2% 
of the soft wood cut, although they built 82% as much 



87 

mileage as in 1909. In 1913 only 28% of the cut went into 
houses and buildings. "Without going into wearisome de- 
tails, it is common knowledge that for many purposes 
for which lumber had a monopoly of use substitutes have 
taken its place, and that in the future value will deter- 
minate the commodity to be used for a specific purpose — 
by which test lumber will have to stand or fall. Wood, 
however, through its inherent qualities for many pur- 
poses, has distinct advantages over any substitute, and 
its uses are so manifold and varied that no one need fear 
lest it become commercially valueless or serve no useful 
purpose. Its use enters into nearly every form of manu- 
facturing activity ; and instead of this use decreasing un- 
der business-like methods of sale and distribution its 
use, though not in the form of 20 years ago, will increase. 

(q) Wider Use — Fair Return. 

It would seem that when the facts are analyzed the 
solution lies in securing a wider use of lumber and a fair 
return. This certainly is the ultimate purpose of the 
manufacturer. While under existing conditions there is 
overproduction, it might be stated with equal truth that 
there is under-consumption, and it would appear that the 
most constructive policy to follow would be one having 
for its purpose the enlargement of markets and the in- 
creasing of use as a remedy for overproduction. This is 
not to say that temporarily and from time to time it may 
not be wise and sound business policy to limit output, but 
it must be apparent that such a plan will not effect a 
permanent cure. 

We lay this principle down as axiomatic that any legiti- 
mate business is entitled to a fair profit on the invest- 
ment. Indeed, stability and fair profit are synonymous 
with good business. Good morals, sound economics, busi- 
ness ethics, and the public weal support this proposition. 
The end of an unprofitable business is bankruptcy and 
consequent loss — a loss that is harmful not only to the 
individual but the public as well. This fair return the 



88 

lumber industry lias not been receiving. We take the fol- 
lowing excerpt from a report made by Chief Forester 
Henry S. Graves to Secretary of Agriculture Houston, 
published in '^American Lumberman" of March 7, 1914: 

'^From 1909 to 1911 many saw mills operated at 
an actual loss because carrying charges on their 
indebtedness would not permit them to close down. 
One hundred and thirty mills in the two leading 
lumber-producing states were idle altogether." 

The condition he describes as existing in 1911 became 
worse later. 

(r) Hoiv Increased Use, Elimination of Waste, and a 
Fair Return May Be Secured. 

In giving our views as to how increased use, elimina- 
tion of waste, and a fair return may be secured, we shall 
be as brief as possible. We have already explained the 
change in the character of output. With this change the 
underlying principle on which the business was being 
conducted also changed; but we fear the operators did 
not see this as clearly as they might. New wine cannot 
be put in old bottles, neither can the methods applicable 
to the production of crude articles purchased in large 
quantities by a few buyers be supplied to refined manu- 
facturing and wide distribution. Fundamentally it would 
seem as if any manufacturer would desire to secure the 
greatest possible commercial product from his raw ma- 
terial and then distribute it as widely as possible. If 
this is a sound principle, then the lumber manufacturer 
should get every possible commercial product out of a 
log, precisely as does the packer with the hog. By so do- 
ing not only will wast^.be eliminated-- a waste statei- to 
be by Mr. Weiss about 60% between the standing tree 
and the lumber — ^but paradoxical as it may seem, the 
manufacturer will be enabled to sell at an average lower " 
price, at the same time securing an average higher profit. 

In this direction, it seems, the future of the industry 
lies. The desired result can be secured only by closer 



89 

utilization, or, to state it another way, more refined man- 
ufacturing, wider distribution, better merchandising, and 
more efficiency all around. Each of these means would 
be a topic in itself, but we will limit ourselves to the 
merest generalizations. Refined manufacturing can be 
carried on successfully only at the source of supply — the 
tree. Under any circumstances the cost of transporta- 
tion is a heavy item in the lumber business. But when 
this cost is paid for the transportation of waste, it be- 
comes almost prohibitory. Wood is in a way a peculiar 
commodity in relation to its further manufacture. It 
mixes with nothing; it is the raw material, and it is the 
manufactured product. For the manufacture of the or- 
dinary products of lumber all that is required is the 
lumber and glue, nails, or screws. To illustrate (for it 
is only illustrative), we will give the facts with respect 
to the manufacture of the ordinary stock door in common 
use. These dors when finished are of the very best ma- 
terial, yet of what are they made? Of material that as 
lumber would be of low grade, because of knots and other 
defects and known as ^ ^ shop common. ' ' The photographs 
on their face show the character of lumber from which 
these doors are made. By cutting up the boards the va- 
rious pieces entering into the manufacture of the door 
are saved. This results in two savings, viz. : that part 
of the board which is almost a waste product, and the cost 
of transporting the waste if carried elsewhere for manu- 
facture. The raw product may be shipped in two forms, 
one * ^ cut stock, ' ' which means the board has been cut up 
so as to eliminate the knots and other defects ready to 
be manufactured into the door; the other, the board as 
it comes from the planer. Surprising as it may seem, 
the actual waste in working up the ^'cut stock ^' into the 
door is from 20% to 22%, and in the case of the board 
from 35% to 42% ; and this is real waste, for which no 
substantial use exists. These facts are of record in the 
case of Anson-Gilkey Hurd Co. et dl. v. S. P. Co. et al., 
33 I. 0. C. 332. The freight on the waste is paid by the 



90 

consumer — the public — who is rarely directly represented 
before Commissions, but whose interests it is one of the 
chief duties of Commissions to protect. On the common 
fir door, if made from the board, the transportation cost 
on the waste to Chicago is about 8 cents, and on the pine 
door about 5 cents, and less if made from ''cut stock.'' 
The door itself sells from 85 cents to $1 and as stock 
doors are in common use their manufacture runs into 
very large quantities, it being estimated about 4,000,000 
of these doors are now manufactured annually on the Pa- 
cific Coast. The imposition of charges to "take up the 
waste" so as to allow manufacturers at a distance from 
the source of supply to compete with those at the source 
of supply can only result in casting an unjust burden 
on the consumer. We cannot enter into a discussion of 
freight rates; but transportation cost is almost a con- 
trolling element in distribution of lumber and ordinary 
mill products for any considerable distance. The trend 
of the industry of late years has been towards more re- 
fined manufacturing; and it would seem as if the inter- 
est of the public as well as of the industry will be fur- 
thered by allowing mixtures of the usual mill products 
of lumber and of lumber itself to be shipped in the car 
at the same rate. In this way the small buyer will be able 
to supply his needs directly without the product going 
through the hands of several intermediaries. To illus- 
trate: a small man cannoi handle and does not want a 
carload of doors, a carload of window sash, or carloads 
of different kinds of lumber. What he wants is a car- 
load of mixtures suitable to his needs, and it is on those 
lines that the business is being gradually built up and 
stabilized. The process illustrated by the doors could 
be further exemplified, but as it is a principle we are en- 
deavoring to illustrate, one example is as good as another. 
In other words, there is no way other than by manufac- 
turing at the source of supply that waste can be elim- 
inated, and the refined processes of manufacture brought 
about. It needs no argument to show that if the various 




& 
o 




o 



91 

processes of remanufacture, or saving of what is now 
waste through its utilization, are to be preceded by trans- 
porting the raw material to distant points, the thing can- 
not be done. Sonnd economics demand that every un- 
necessary cost be eliminated, and that the manufacture 
be carried on where it can be done at the least cost and 
with the greatest efficiency. 

(s) Distribution. 

But little need be said as to the necessity for wide 
distribution. The products of a log and their uses are 
so varied that it takes many markets to absorb them. A 
recent chart prepared by the Forest Service shows the 
distribution of Douglas fir on a cut of 6 billion feet by 
percentages. This chart shows the distribution in every 
state except seven. By far the larger portion was used 
west of the Missouri River notwithstanding the enormous 
preponderance of population east of that river, this fact 
is not to be wondered at when one considers that to 
Omaha the rate is 50 cents per 100 pounds and to Chi- 
cago 55 cents per 100 pounds. Green lumber weighs 3,300 
pounds to the M feet, so that to Omaha on green 
lumber the freight charge per M feet would be $16.50 
and to Chicago, $18.15 per M feet. Dry lumber will run 
from 2,000 to 2,500 pounds per thousand ; so it can readily 
be seen why the freight rate is such an important item 
to the Pacific Coast lumber producer, and why the trans- 
portation of waste should be discouraged. 

(t) General Suggestions. 

We will discuss hereafter the opportunities of enlarg- 
ing our export business. Better merchandising and more 
efficiency need no elaboration. Some, at any rate, of the 
intermediaries between producer and consumer will have 
to be eliminated — and expense will be saved in this di- 
rection as well as in others. To put it in a word, modern 
methods of doing business must be adopted. In this in- 
dustry as in others standardized systems of accounting 



92 

must be adopted not by one bnt by all. Commissioner 
Hnrley in a recent address said : 

^^ Speaking generally, the real, constrnctive help 
must come from within. You know, and I know, that 
lumping all business together, the real need is for 
better business methods. When we were all working 
on a large percentage of profit, and when it was a 
case of filling orders at our own price, we didn't 
need any help. But, gentlemen, that day is past. 
We now have to get down to the hard facts of busi- 
ness, to learn precisely what they are, where the 
weaknesses and losses exist, and practice the same 
thoroughness which characterizes trade and industry 
in Europe. We need to study standard systems of 
bookkeeping and cost accounting. The fact must be 
admitted that in order to put a selling price on a 
product a manufacturer must first know exactly what 
it costs to manufacture and sell it. 

**A manufacturer w^ho does not know, with a close 
degree of accuracy, what it costs him to produce the 
difierent articles he manufactures, and what it costs 
him to sell them, is not in a position intelligently 
to meet competition, and invites business disas- 
ter. * * * 

''Proper accounting for the smaller manufacturer 
is most essential. It is necessary for his success that 
he know on what particular article he is making a 
fair profit and on what he is making only a narrow 
margin of profit, or losing money. If he has this 
information he can concentrate on the manufacture 
and sale of the product on which the profits are 
satisfactory. 

''Whole industries, in many instances, are suffer- 
ing from a general lack of intelligent knowledge of 
cost." 

(u) Association Work. 

The work outlined cannot be done by the individual. 
Associated work is essential. Co-operation is the key 
that will open the door. If association work, if co-opera- 
tion is to be condemned, then, unless experience is to go 
for naught, there is not much to hope for in the imme- 
diate present from an industry represented by nearly 



93 

50,000 separate units. There is no reason, however, to 
fear that association work founded on sound principles 
and conducted on right lines will be discouraged. On the 
contrary, if Commissioner Hurley's attitude fairly rep- 
resents that of the Commission as a whole, co-operation 
will be encouraged. In the same address to which we 
have just referred, speaking of Association work, he said : 

^^ There should he a greater degree of organization 
and of mutual helpfulness in all lines of trade and 
industry, so that American business may be welded 
into a commercial and industrial whole ; the part of 
the government being to cooperate with business 
men, on request, to bring about the results that will 
benefit business and hence promote our national 
welfare. 

^'One of the most effective forms of organization 
is the trade association. The association has a wide 
field of useful and proper activities. Concerns in 
the same industry may taJce common action looking 
toward improving their processes of manufacture, 
standardizing their product, improving their system 
of ascertaining costs, obtaining credit information, 
and encouraging the development of trade jour- 
nals. * * * 

^'So today the associations of manufacturers, asso- 
ciations of jobbers, associations of merchants, asso- 
ciations of advertisers, are doing good work, and if 
conducted in a spirit of mutual helpfulness, with the 
machinery of the Government standing by subject to 
call, will help to solve problems and remove many 
of the present handicaps of business." 

(v) Large Units. 

While, as we have shown, there is a place and an im- 
portant one for the smaller mill, it is apparent that, if 
there is to be complete utilization growing out of refined 
manufacturing, if there is to be wider distribution, if 
there is to be better salesmanship and increased efficiency, 
they can be brought about only through manufacturing 
at the point of production and in large units. 

We will not repeat here what we have heretofore said 
upon this same subject. It is so plain that the smaller 



94 

operators cannot meet the exigencies of the case that no 
argument to demonstrate it is required. For obvions 
reaso^s it is apparent that in ^'ealit^ no matter how large 
the operation may be, control of prices in the sense in 
which the term is ordinarily used can never be made ef- 
fective. There are too many competitive conditions to 
take into account for this ever to occur. If, however, the 
suggestions made are sound, there should result more 
stable conditions and a reasonable average price for the 
product. The suggested system of manufacturing and 
distribution will tend to lower cost; it will tend to con-, 
serve the raw material ; and it will tend to more efficient 
manufacturing, which is after all the real test of good 
business. This system will also tend to place lumber and 
its products in the hands of the ultimate consumer at a 
fair and stable price, and the user will know what he can 
depend upon. While there is no desire to eliminate any 
useful distributing agency, it is apparent that the method 
outlined will work towards doing away with all unnec- 
essary cost intervening between producer and consumer. 
We have not undertaken to cover every detail of the 
lumber business, nor do we think it necessary to do so. 
There are many matters that are so peculiarly problems 
of the manufacturer that it seems to us to be more or 
less of an imposition upon the Commission to take up its 
time in discussing them. We do not understand that it 
is the thought of anyone engaged in the industry that 
every detail of the conduct of the business should be di- 
rected or controlled by the Commission, but it is believed 
that factors which, as one might say, are of universal 
application and of general significance should receive con- 
sideration. It is from this standpoint that we are sub- 
mitting the matter. The foregoing discussion, covering 
what might be termed the future operations of the in- 
dustry, refers almost entirely to matters which are within 
the power of the manufacturers to direct and control. 
We shall later briefly refer to some of the things 
which it is believed this Commission may do. We 



95 

shall not discuss at any length the powers of the 
Commission under the law, as that task has been under- 
taken by our Associate Counsel, General Boyle. If, there- 
fore, our suggestions may seem somewhat terse or dog- 
matic, it will be understood they are to be read in con- 
nection with the argument on the law and powers of the 
Commission as presented by General Boyle. 

(w) Suggested Remedies Within the Industry. 

While there are many manufacturers in the various 
branches of the industry who are operating with great 
efficiency, it cannot be said that this is the rule. The fol- 
lowing statement sets forth in brief the methods which 
in our opinion must be applied generally if some of the 
causes which are seriously hampering the industry are 
to be eliminated : 

Better manufacturing, with closer utilization brought 
about by more refined processes of manufacture; better 
salesmanship; use of standard systems of accounting; 
more direct and wider distribution ; co-operation and as- 
sociated effort. 

These methods will all tend to increase efficiency and 
will help to stabilize the industry. Even, however, with 
the manufacturer doing his full part, there are some 
fundamental causes for existing conditions which can- 
not be remedied by the individual, and which can be 
reached only through governmental agencies. We will 
address ourselves later to this branch of the subject. 

Throughout this brief will be found various references 
to the importance of conserving the timber supply. No 
one could possibly be more in favor of this policy than 
the lumbermen. At the same time there is a conservation 
that is aided by use; and, while it may not be the best of 
form to quote one's own opinion, we shall not, perhaps, 
be too severely criticized if we quote from an answer 
given by Mr. Teal to the ' ^ American Forestry ' ' and pub- 
lished in May, 1915, in response to a question as to what 
was the most immediate problem in connection with for- 



96 

est conservation. As the answer was not given in con- 
templation of any investigation of the lumber industry 
and was simply an opinion, we quote it for what it is 
worth : 

''Conservation of Use. 

^^The instant question of forest conservation and 
the one pressing for solution is that of use. That 
forests must be protected from destruction of all 
kinds, that a vast public interest is to be conserved 
by their protection is now generally accepted. Atten- 
tion must now be directed to encouraging and secur- 
ing the greatest possible use of this vast national 
resource. Governmental agencies should from now 
on exercise the same zeal in securing the distribution 
of the manufactured product as they have shown in 
the past in protecting the tree. Only through use 
will results be accomplished. If this great national 
asset is to be realized on, if it is to serve its pur- 
pose, foreign and domestic markets must be opened 
up on a basis that will place one of the greatest of 
our industries on a sound foundation. The commer- 
cial and industrial side of the question is as impor- 
tant as that of protecting the forest from physical 
harm. In other words, use of the product is a most 
important part of its conservation, and without use 
it is difficult to see the necessity for wasting time or 
money in protection. Make the forests of value and 
they will be taken care of. Without this incentive 
there is little inducement for their preservation. It 
has been said truthfully, forest conservation is now 
90% salesmanship and 10% forestry." 

(6) Taxation. 

While this question is one to be dealt with direbtly by 
the states and local tax levying bodies, it is one that must 
among others be considered by this Commission in work- 
ing out the problem — for it can truly be so designated — 
of the future of the lumber industry. 

To what extent speculation in timber ownership was 
in the not remote past induced by statements widely cir- 
culated through official sources, and generally believed 
of an impending shortage in standing timber, is not of 



97 

great consequence; except to say that responsibility for 
the speculation referred to should not be cast entirely 
on the individual. What is of more importance is the 
fact that the belief in this idea, that the supply of stand- 
ing timber would soon be exhausted, is directly respon- 
sible for some of the conditions we are now trying to 
remedy. It has been said by good judges that in the 
Northwest it takes one-half the receipts from the cut to 
pay the taxes on the timber holdings. Whether or not 
this statement is strictly accurate it does require an enor- 
mous sum of money each year to pay the taxes. 

A successful operating plant in the Northwest should 
have at least a 15-year supply of raw material, and when 
this is cut that ends the operation, for there will be but 
the one crop. To a disinterested observer it would ap- 
pear that under existing systems of taxation the cost of 
holding timber on a very reasonable basis of value is 
more than the increased growth or value will return. 
That the Commission may have before it reliable figures 
as to taxes actually paid and being paid we submit the 
f ollow^ing tabulations : 

FROM EXHIBIT C. 

(Page 96, Chicago Hearing.) 

Cowlitz County, Washington — 674.22 Acres. 

Year. Valuation. Taxes. Rate in Mills. 

1904 $ 4,044 $155.69 38.5 

1908 31,200 748.80 24.0 

1913 18,720 786.24 42.0 

1914 16,322 661.04 40.5 

Increase in valuation to 1913, 362%; in taxes, 405%. 

County Cruise, 30,030 M Fir, good quality; 1,170 M Ce- 
dar; 2,892 M Hemlock. 

Coivlitz County, Washington — 640 Acres. 

Year. Valuation. Taxes. Rate in Mills. 

1904 $ 6,400 $201.60 31.5 

1913 21,704 924.97 42.5 

1914 21,764 848.80 39.0 

Increase in valuation, 1913, 240% ; in taxes, 260%. 



98 

County Cruise, 54,410 M Fir, good quality; 1,405 M Hem- 
lock. 

Cowlitz County, Washington — 640 Acres. 
Year. Valuation. Taxes. Eate in Mills. 

1904 $9,600 $ 321.60 33.5 

1913 30,500 1,494.50 49.0 

1914 14,217 554.46 39.0 

County Cruise, 34,089 M Fir; 111 M Cedar; 2,869 M 
Hemlock. 

Pacific County, Washington. 
Year. Valuation. Taxes. Eate in Mills. 

1904 $ 2,560 $ 112.64 44.0 

1913 37,765 1,303.69 37.5 

County Cruise, 32,787 M Fir; 4,445 M Cedar; 1,308 M 
Spruce ; 925 M Hemlock. 

Leivis County, Washington — 640 Acres. 
Year. Valuation. Taxes. Eate in Mills. 

1904 $ 3,420 $ 95.96 28.0 

]^9][3 20 370 800.55 39.3 

County Cruise,' 40,283 M Fir ; 8,172 M Cedar ; 415 MHem- 
lock. 

Lewis County, Washington — 650 Acres. 
Year. Valuation. Taxes. Eate in Mills. 

1904 $ 6,530 $ 182.84 28.0 

1913 27,960 1,098.22 39.3 

72,585_M Fir. 

Snohomish County, Washington — 568.55 Acres. 
Year. Valuation. Taxes. Eate in Mills. 

1904 $ 4,800 $180.40 37.5 

1913 12,370 616.01 49.8 

Skagit County, Washington — 641.76 Acres. 
Year. Valuation. Taxes. Eate in Mills. 

1904 $4,217 $124.41 29.5 

1913 4,675 229.09 49.0 

Whatcom County, Washington — 640 Acres. 
Year. Valuation. Taxes. Eate in Mills. 

1904 $ 3,840 $103.68 27.0 

1913 26,080 989.48 38.0 

County Cruise, 11,830 M Fir; 15,720 M Cedar; 2,190 M 
Hemlock. 



99 

EXHIBIT D. 

Chehalis County, Washington. 
Comparative statement showing valuation and percent- 
age of assessment on timber lands and all other property 
for the years 1908, 1910, 1912, and 1914. 

1908 1910 

Val. % Val. % 

Timber lands $ 7,374,949 49.33 $ 8,874,712 47.9 

All other property. . 7,535,569 50.67 9,932,589 52.1 

Total $14,950,518 $18,807,301 

1912 1914 

Val. % Val. % 

Timber lands $15,718,118 47.38 $20,743,593 49.52 

All other property. 17,457,658 51.62 21,143,067 50.48 

Total $33,175,776 $41,886,660 

The enormous increase in assessed valuations, in levy 
and in taxes is apparent. The effect of this system of 
taxation is bound to influence the cutting of the timber. 

In Chehalis County in 1908 the timber lands carried 
491/3% of all the taxes of the county and after six 
years logging the valuation for the purpose of taxation 
has almost trebled, its proportion of the total tax being 
49.52%. 

These illustrations are not isolated cases. At Tacoma 
Mr. J. T. Gregory (Spokane Eec, p. 34) submitted a 
statement showing taxes paid for a series of years on 
certain tracts. We take first and last year's only. 
Mason County, Washington, 640 Acres. 

1906 $48.93 

1914 270.90 

Lewis County, Washington, 240 Acres. 

1906 $ 75.69 

1914 257.50 

Columbia County, Oregon, 640 Acres. 

1906 $143.36 

1914 371.38 



100 

It was stated that companies represented by Mr. Greg- 
ory owned about 7,000,000,000 feet of timber in Oregon 
and Washington (p. 34) and that the figures were fairly 
representative of the taxes paid on all the holdings 
(p. 35). 

We secured from a very reliable timber owner in Port- 
land a statement taken at random from records in his 
office and covering 1,280 acres in Washington and 640 
acres in Oregon, or 1,920 acres in all, which shows the 
taxes paid on these lands from 1906 to 1914. Prior to 
1906 the taxes averaged about 25 cents per acre per an- 
num, or less than $500 annually. The following table 
shows assessment and tax for a few of the years : 

Year Assessment Taxes 

1906 $26,755 $ 696.16 

1910 35,533 772.15 

1913 38,923 1,220.14 

1914 35,534 1,170.48 

Compare any of these amounts with the fixed tax of 
British Columbia on timber limits not exceeding 640 
acres. There, in the Coast region, it is $140 per year 
for each limit (limits, we understand, average about 600 
acres) and east of the mountains it is $100 per year. 
The taxes cited from our Northwest run from twice the 
British Columbia rental to ten times that amount. Mak- 
ing every allowance for lighter stand in British Colum- 
bia and lower taxes in some sections of the Northwest 
than in those cited, it is apparent that the fixed annual 
charge in British Columbia is much less than the annual 
tax in our country. With us, too, the annual tax is sub- 
ject to the caprices of tax levying bodies. Mr. Ames' 
analysis, at the Tacoma hearing, of the tax levy and its 
effect in the state of Washington is of interest. It ap- 
pears the county cruises run from 50,000 to 60,000 board 
feet of lumber per acre (Tacoma Eec, p. 25) . In 14 coun- 
ties in which his company owned land the average tax paid 
for the year 1913 was $1,119 per acre, a little over 2 cents 



101 

per 1,000 on the county cruise (Spokane Rec, p. 26). To 
carry the timber at an average value of $50 per acre, the 
interest at 6% would make $3.00 per acre or 6 cents per 
thousand (Tacoma Rec, p. 27). Forest fire association 
work cost 2 cents per acre (Tacoma Rec, p. 28). While 
the average carrying charge is about 9 cents per thou- 
sand, there are places where it is 12 to 17 cents a thou- 
sand per year. That amount or even 8 cents per thousand 
with accumulating interest charges and increasing taxes 
means confiscation in a few years (Tacoma Rec, p. 28). 

On a certain acreage in 1905 the average tax per acre 
was 22.9 cents per acre; in 1906, 36.4 cents; in 1907, 52.2 
cents ; in 1908, 58.2 cents ; 1909, 67.4 cents ; 1910, 74 cents ; 
1911, 80.1 cents; 1912, 85.9 cents and in 1913, $1,119 per 
acre. 

These illustrations demonstrate, to say the least, that 
taxation of timber land is a problem that in some way 
will have to be dealt with. "We appreciate that this Com- 
mission has no power in the premises but taxes cannot be 
overlooked as a factor in cost of production. That high 
taxation enforces cutting cannot be doubted. With en- 
forced cutting prices fall. Thus the vicious circle is 
started and thus the never ending round begins. There 
is no more difficult subject for the timber owner to deal 
with than that of taxation. Certainly there is none on 
which so much has been written and yet is so little un- 
derstood. Aside from this, the ever-present effort to 
shift the tax on the other man and the other class of 
property must always be taken into account. No matter 
what kind of a tax is proposed, or how equitable it may 
be, there are always those who will oppose it in their 
own interest, and the public in despair falls back on the 
old ad valorem property tax regardless of its applicabil- 
ity, of its equity, or of its results. 

Reforms of any kind move slowly, and Sisyphus him- 
self might have been appalled if given the task of at- 
tempting to bring about reform in taxation. It is hoped 
that the deferred system of taxation, in so far as it is 



102 

consistent with absolute revenue requirements, may yet 
be adopted. This will take time, however, and it will 
not come until the public has a better conception of their 
interest not only in the proper conservation of the tim- 
ber supply but also in its proper utilization. In the 
mean time the timber owner should at least take such 
interest in governmental affairs as will tend to prevent 
extravagance and waste in public administration. Puni- 
tive taxation based on the unfounded belief that forest 
owning is ever profitable can, it is hoped, be modified; 
and educational work can be carried on with this end in 
view. If after studying this question this Commission 
agrees with our conclusion, it can be of enormous as- 
sistance by adding, as a representative of the whole na- 
tion, its voice and influence against a system of taxation 
which compels untimely cutting and the waste of a nat- 
ural resource with the concomitant results of depressed 
business, low wages, and unemployment. 

(?) National Forests. 

(a) History and Importance. 

The people's interest in forests, either public or pri- 
vate, is a topic which really needs no discussion ; but as 
the foundation of the industry rests upon the timber 
supply and its future is based upon its continuity, no 
discussion of the subject is possible without some refer- 
ence to this question. In our discussion of this feature 
we shall draw quite largely from material gathered by 
the Forestry Committee of the Fifth National Conserva- 
tion Congress and shall omit quotation marks, because 
what will be said consists largely of truisms. No au- 
thority is claimed for the report, except as it appeals to 
reason and common sense ; and what is therein said has 
been said by many, though perhaps in different words. 
We shall also combine and use statements made by rep- 
resentatives of the industry who appeared before the 
Commission at the various hearings. 



103 

The most direct proof of public interest in the forests 
will be found in the statutes of the United States and 
of the several states. As early as 1799 the demands of 
our navy led Congress to provide for the purchase of 
timber lands for its use. The following- statement, taken 
from *^The National Forest ManuaP' for August 12, 
1912, gives in concise form the genesis and development 
of our national forest legislation : 

^^In 1876, $2,000 was appropriated to employ a 
competent man to investigate timber conditions in 
the United States, and on June 30, 1886, an act was 
approved creating a Division of Forestry in the De- 
partment of Agriculture. On July 1, 1901, this 
Division became the Bureau of Forestry, which, in 
turn, under the act of February 1, 1905, became the 
Forest Service. 

^' With the increasing realization that the Nation's 
forest resources must be protected, and with the im- 
mense growth of irrigation interests in the West, 
the necessity for retaining permanent Federal con- 
trol over selected forest areas was recognized by a 
brief section inserted in the act of March 3, 1891 
(26 Stat. 1095), which authorized the President to 
establish forest reserves, now called National For- 
ests. The first exercise of this authority was in the 
^ creation of the Yellowstone Park Timber Land Re- 
serve, proclaimed by President Harrison March 30, 
1891. The mere creation and setting apart of forest 
reserves, however, without provision for their use, 
was both ineffectual and annoying to local interests, 
dependent upon their resources. Consequently the 
Secretary of the Interior, in 1896, requested the Na- 
tional Academy of Sciences to recommend a national 
forest policy. This resulted in the passage of the 
act of June 4, 1897 (30 Stat. 11), under which, with 
subsequent enactments. National Forests are now 
administered.'' 

Apart from the necessity for making both present and 
future provisions for lumber, the public forests, irre- 
spective of their financial value, perform functions and 
serve uses of national concern. They cover and pro- 
tect the headwaters of streams used for navigation, irri- 



104 

gation, and power. Tliey prevent or minimize disastrous 
floods which do not recognize state lines. They retard 
soil erosion, and in many ways have a direct effect of 
the greatest consequence to the country's welfare. The 
timber supply of the future is of vital importance to the 
nation, and the continuity of its production is a national 
problem. Nor has governmental care and interest been 
confined to the public forest — legislation, both national 
and state, has also been directed at conserving and pro- 
tecting the privately owned forest because, and only be- 
cause, the public has a real and vital interest in its use, 
conservation, and development. 

Many states as well as the nation are active in fire pro- 
tection and the reforestation of denuded areas, and carry 
on this work through funds raised by taxation. It is a 
significant fact that while probably three times as much 
forest land is in private ownership as in public owner- 
ship, no line is drawn in the matter of their protection, 
nor in the consideration of many questions which neces- 
sarily involve the supply irrespective of ownership. In- 
deed, this topic might have been passed with the simple 
statement that everyone, everywhere, concedes the con- 
duct of the forests and their perpetuity to be a question 
of national importance. In brief, it may be said that the 
public interest in forests may be divided into two gen- 
eral classifications. First — the direct financial interest. 
Under this heading might properly be listed the opera- 
tion of the lumber industry with all that it implies. Sec- 
ond — the more indirect, but none the less important, ben- 
efits accruing to the public through the existence of the 
forests. These benefits we have heretofore referred to 
as the conserving of water, prevention of soil erosion, 
etc., etc. 

(h) The National Forest Policy. 
The ownership of timber and its conversion into usable 
form constitute the lumber industry. Formerly owner- 
ship and conversion were less closely connected. Timber 



105 

owning and logging were, to a very mucli greater extent 
than is the case today, a distinct part of the business. 
While even yet there are large holdings, as well as many 
smaller ones in the hands of those who are timber own- 
ers or loggers, the normal tendency has been toward the 
securing by the operator of a supply of timber in ad- 
vance, having some relation to the capacity of his mill. 
The amount thought necessary varies, but a ten to fif- 
teen-year supply is generally believed essential by the 
more conservative operators. It is true that there has 
been more or less speculation in timber lands, and it 
is true that much of the standing timber was obtained 
at but trifling cost compared to the prices of today. It 
is also true that there has been speculation in almost 
any other commodity that might be mentioned, and that 
at times the price of every commodity has varied. Tradi- 
tion has it that Manhattan Island once sold for $24 or 
thereabouts, but business or values in New York are 
not based on conditions of centuries ago. So it is with 
standing timber. Prices paid for it 50 years ago, when 
it was of no real value, or those paid before markets 
were created or could be reached, are entirely beside 
the question we are considering. Those who own the 
timber now have generally either carried it for years, or 
have purchased it on a stumpage basis of going values. 
Neither is this inquiry addressed to methods by which 
titles were secured, or to the size of holdings. The testi- 
mony of Mr. Ames, whose company was one of the earlier 
investors in timber, is illuminating in tending to show 
that the pioneers of the West were neither lawless nor 
drones, and that investments then made at low figures 
represent large sums today, even though the ownership 
never changed. It should also be kept in mind that $1.50 
per acre invested 50 years ago, or even 30 years ago, 
represents a considerable sum today. Referring to cer- 
tain pieces purchased at an early date, Mr. Ames sub- 
mitted statements showing that on a purchase of $1.25 
per acre, compounding the interest at 6%, the land rep- 



106 

resented in 1909 a cost of $35 per acre (Taconia Rec, 
p. 25). If compounding the interest be thongM to exag- 
gerate the cost, simple interest alone represents a large 
sum. Adding taxes (for timber purposes only), Mr. 
Ames figures that, at the date mentioned, the particu- 
lar piece to which he referred stood the company in be- 
tween $50.00 and $60.00 per acre (Tacoma Eec, p. 25). 
It is not material what vie^vpoint one takes as to the 
methods used in arriving at what might be termed the in- 
vestment, the fact remains that on such investments, no 
matter how the profit is figured, there must be consid- 
ered, as a plain business proposition, the original in- 
vestment, the maturing investment, so to speak, the taxes, 
and the other carrying costs. We have no desire to ex- 
aggerate these figures, but only to emphasize the fact 
that in order to secure any return and get back the actual 
money invested, these lands must be treated as really 
worth a reasonable and not inconsiderable sum today; 
and it would seem that, with conditions as they have 
been for the past two or three years, the reasonable 
minimum amount is the going value for stumpage dur- 
ing the same period. Moreover it needs no testimony 
other than that found in the statutes to show that the 
policy x)f every governmental agency for many years 
has been to dispose of the national resources as rapidly 
as possible. There is not a state in the Union which has 
not followed this policy, nor did the general government 
lag behind them. The purpose of every public agency 
seemed to be to get the lands, forests, or other natural 
resources into the hands of the individual as rapidly as 
possible. This policy has now to a degree been changed, 
and the forests undisposed of are left in the hands of 
the National Government. It is obvious that if taxation 
and carrying costs exceed increasing value, or if the 
Government enters into the market as an active vendor 
of timber in competition with that privately owned, the 
privately owned timber will have to be manufactured and 
forced upon an overstocked market, resulting in irre- 



107 

parable waste and loss. It is manifestly impossible for 
ns in this brief to enter upon a discussion of a subject 
wMcb on its face requires not only great practical knowl- 
edge, but also a thorough understanding of economic 
and social principles as well as of governmental policy. 
The most that can be expected is an exposition sufficient 
'to demonstrate that the disposition of the national for- 
ests is a very vital part of the subject. 

It will be remembered that the public forests were 
originally called, not ^^ National Forests," but '^Forest 
Reserves ' ' ; and the basic principle underlying their crea- 
tion was the conservation of a supply of timber to the 
people of the United States against the time when there 
should be no other supply. They were intended as ^Pre- 
serves," predicated upon the idea widely circulated and 
generally believed that almost within a generation, un- 
less some such step were taken, standing timber in the 
United States would be exhausted. With the change of 
name to ^^ National Forests" there was a change of pol- 
icy, compelled very largely by reasons not now neces- 
sary to discuss. It is well known, however, that there 
has been more or less pressure exerted to put the '' For- 
est Service" on a self-sustaining basis at once, without 
giving due consideration to its many functions or to the 
very important and valuable part it plays in every phase 
of the industry's life. Scores of departments are rightly 
maintained, at the public cost, for assisting in the de- 
velopment and extension of other industries, but for 
some reasons not well understood the lumber industry 
seems to have been, if not looked on askance, at any rate 
not viewed with favor. Yet, if the Forest Service must 
rely solely on its own resources in carrying out its real 
purpose, namely, the preservation of the timber supply, 
as well as its other functions, such as technical research, 
increasing utilization, protection of water sheds, etc., 
etc., then, of course, it must turn to the forests them- 
selves and the revenue derived therefrom for the neces- 
sary funds. 



108 

It certainly cannot be claimed that the Service is not 
pushing its sales, for some of its advertisements offer 
inducements enough to tempt almost anyone to become 
a manufacturer of lumber. For instance, as a competi- 
tive proposition, how can the private owner meet o:ffers 
as attractive as these taken from a Forest Service ad- 
vertisement? ^^ Heavy carrying charges eliminated — no 
interest on timber or taxes on land or timber to be met." 

* * * ( f Skinning of land unnecessary — operator 
takes cream of timber by cutting mature trees only" 

* * * appraisals of stumpage made on basis of al- 
lowing an operating profit of from 15% to 25%. " * * * 
^'No cut-over lands to hold — operator contracts for tim- 
ber alone and has no logged-off land to hold and pay 
taxes on. " * * * " Should fire occur, the loss of tim- 
ber is borne by the Government (Spokane Rec, p. 44 — 
Langille Ex. No. 4). No one claims that the Forest Serv- 
ice should not sell timber under proper conditions. In 
many cases it may be the only supply available; there 
may be isolated tracts; or there may be private holdings 
mixed in with the public holdings. There are also com- 
munity needs, as well as the needs of the settler, the 
miner, and the small operator to be considered. There 
is the question of revenues, federal and local, for the 
states and counties in which National Forests are situ- 
ated. Plainly, there are many factors involved which 
require earnest study and deliberation. The Forest 
Service itself recognizes their importance and is doing 
its best to work out the proper solution. At this time 
the most that can be hoped for is to call this factor to the 
attention of the Commission, so that a question of such 
deep import will not be overlooked. 

It may be said that the Forest Service has dual func- 
tions. As the nation's official agency for the promotion 
of national forest welfare and the builder of an Ameri- 
can forest policy, it should encourage wise management 
of all forest resources. It should promote stability in 
the lumber business, recognizing on the one hand the 



109 

permanent good of tlie consumer and on the other, and 
equally, the good of one of onr greatest sustaining in- 
dustries and resources. Its other function is the stew- 
ardship of public property in the national forests. Its 
task in reconciling these functions is a most delicate 
one ; and it is this task which should constitute an Amer- 
ican forest policy. 

It is the belief of those most directly interested and in 
a position to judge that thus far the Forest Service has 
not had the governmental assistance it should have re- 
ceived in solving the problem and work conunitted to it. 
It has been much criticized, and but too rarely supported. 
In its function as investigator and constructor of a na- 
tional policy for the general promotion of forest indus- 
try the Service is notable for sincerity and integrity, 
and has been free from politics and truculence. It has 
the thorough respect and confidence of lumber and for- 
est interests; and, barring the possibility of occasional 
errors in dealing with business exigencies on the part of 
men who are professional rather than commercial, it is 
both competent and helpful, and no governmental agency 
is considered by lumbermen more so. 

As an economic proposition, we submit that overpro- 
duction of lumber is an evil to the consumer as well as to 
the producer, and that only harm can come from con- 
ditions which permit or encourage lumbering by incom- 
petent and weak operators. It is our belief that the 
permanent good of the consumer, as well as of depend- 
ent communities, lies in stabilizing the industry on a 
sound and economic basis. We believe that, in order 
to secure economical distribution of the product at a 
fair minimum price, as well as the perpetuation of the 
resource and the industry, competent and intelligent op- 
eration is indispensable, and that the present demoraliza- 
tion of the industry is in itself proof of this contention. 

If our views are sound, it would seem that to allow 
the Grovernment to compete in the market at such a time 
with timber which involves less carrying cost, and which 



no 

therefore can afford the cheapest reserve for future con- 
sumers, is an economic mistake. For the Government 
to sell its timber generally does not at the present time 
benefit the consumer; for stumpage value has little or 
no influence upon the retail price under prevailing con- 
ditions of distribution and transportation. It does, how- 
ever, injure the manufacturing industry, promote waste, 
and reduce the future return from the Grovernment tim- 
ber. Cut-throat competition has never been approved 
either by economists, govermnental agencies, or fair- 
minded business men, and it would seem that the Gov- 
ernment's duty to itself, to the consumer, and to an in- 
dustry of such vast economic importance as is that of 
lumbering is to refrain from this character of competi- 
tion under conditions which do not demand it, and to re- 
serve its supply for a better financial return and for a 
more needed weapon against private monopoly, until such 
time as the market demands it. 

We feel that the Forest Service, with the study it has 
given to the situation, understands all this; and if the 
Commission finds that our suggestions have merit, we 
look for such support at its hands as it can properly give 
in maintaining a sound economic policy with respect to 
the handling and disposition of the National Forests. 

(8) Our Domestic Marine. 

(a) In General. 
In the domestic lumber trade no less than in the for- 
eign trade transportation is one of the pre-requisites to 
successful operation. To the producers on the Pacific 
Coast, located as they are at long distances from the 
great consuming territory, freight rates as well as the 
transportation facilities necessarily are more important 
factors in their operations than is the case with those 
located nearer such markets. A variety of forest prod- 
ucts may be made from the log, and wide distribution 
is essential if the best results are to be secured. The 



Ill 

rail rates are such that to compete in markets east of the 
Missouri Eiver is out of the question, and only special- 
ties of various kinds and particular grades of lumber 
constitute the demands that can be filled from the Pa- 
cific Coast mills. When rates on lumber exceed 40 cents 
per hundred, it is manifest that the transportation cost 
is the most important element going to make the deliv- 
ered price. The freight charge on lumber to the Mis- 
sissippi Valley region from the North Pacific Coast will 
average from $12.00 to $15.00 per thousand (Tacoma 
Rec, p. 61). To the Atlantic Seaboard the rate is 75 
cents per hundred, or $24.75 per thousand on green lum- 
ber. Except for demands for particular uses it needs 
no argument to demonstrate that this rate practically 
prohibits movement, and the Coast lumberman has 
shared but little in the vast lumber trade of the North 
Atlantic Coast states. Under the circumstances it is 
easily understood why none engaged in any industry 
looked with keener interest to the completion of the 
Panama Canal than did the lumbermen of the Pacific 
Coast states. To apprehend their feeling in this respect, 
one should keep in mind not only the shipping laws, 
but also the competition, both actual and potential, of 
British Columbia. 

By act of Congress passed more than a century ago 
and still unchanged, shipping between domestic ports of 
the United States is confined to vessels built in this 
country and of course flying our flag. As to this trade, 
a monopoly is unquestionably created by law except as 
to such competition as may exist between domestic ships. 
On the other hand, British Columbia, being a foreign 
country, may use the ships of any nation to carry on 
trade between her ports and ports in the United States. 
She has the world's shipping to draw upon, whereas we 
have domestic ships only, and the resultant difference in 
charters necessarily follows. 



112 

(h) Difference Between Ship Charters from British Col- 
umbia and Those from Pacific Coast Ports 
to Atlantic Ports. 

In a general way it lias been stated that charters favor 
British Colnmbia shippers from $2.00 to $3.00 per thou- 
sand to Atlantic Coast ports on lumber, as against char- 
ters from the Pacific Coast ports of the United States 
to the same ports. From statements made at the various 
hearings it would appear that this estimate is con- 
servative. 

Mr. E. B. Hazen (Chicago Hearing, p. 93) said: 

''Under our shipping law^s, British Columbia can 
ship to any port in the United States in cheaper ves- 
sels, with smaller crews, lower wages, and can beat 
us from 20% to 25%. Their rail rates into this 
country are the same as from the Columbia River and 
Puget Sound districts to Eastern points of the 
United States, and with a water freight of $3.00 per 
thousand less to the Atlantic Seaboard they have a 
decided advantage. ' ' 

Mr. Hines said (Chicago Hearing, p. 82) : 

*^ Because of the navigation laws of the United 
States, the American lumber manufacturer is com- 
pelled to ship lumber from one American port to 
another in an American boat, flying the American 
flag, built by American labor, and manned by Amer- 
ican seamen, living under American conditions ; while 
the Canadian manufacturer is at liberty to ship from 
Canadian ports on either the Atlantic or Pacific, to 
any American port, in any character of foreign boat. 
This represents conservatively an advantage of $2.00 
per M feet on shipments from Pacific ports in Can- 
ada to Atlantic ports in the United States, through 
the canal or otherwise. When normal conditions are 
restored in Canada following the present European 
war, the Canadian lumber manufacturers can and 
will undoubtedly take advantage of this situation in 
competing for the big markets on the American 
Atlantic seaboard to the detriment of the manufac- 
turers on the American Pacific coast. 



113 

At the Portland Hearing (Tacoma Eec, p. 127), in 
discussing this question, Mr. William D. Wheelwright 
said: 

* ^ As regards shipping, the only thing I might sug- 
gest beyond what is already within your knowledge, 
is that when normal conditions are restored, unless 
some provision is made for an increase of ships that 
can carry lumber from the West Coast of the United 
States to the East Coast of the United States, the 
demand from the East Coast of the United States 
is going to be supplied by British Columbia; our 
lumbermen are going to be thrown out by reason of 
the different rates they have to pay by an American 
bottom over what a foreign bottom can come in here 
and take the lumber for under normal conditions. 
Where the American steamer would have to have 
$12.00 a thousand, we will say, a British steamer can 
take it from a British Columbia port to a United 
States port on the East Coast, or from a United 
States port on this Coast to a Canadian port on the 
East Coast, at $9.00 a thousand, and it does not take 
much to show that that is going to transfer the trade 
to British Columbia. And it seems to me that is a 
most important thing to be considered by the Com- 
mission — some arrangement by which we can ship 
just as cheaply from one coast to the other as the 
British Columbian can ship to the East Coast of the 
United States. 'V 

Commissioner Parry: 

^^Do you think there is an advantage of $3.00 to 
the British Columbia vessels 1 ' ^ 
Mr. Wheelwright: 

^^I put it at a low figure. Other people in the 
business, better able to judge, said it would be $5.00. 
That is, Eobert Dollar said he could transport from 
this Coast to the East Coast in a foreign bottom at 
$7.00 a thousand when the lines are asking $12.00. 
And I think it very likely the lines could do it for 
$10.00. I do not think they could do it for any less. ' ' 

Commissioner Parry : 

^^You do not know of any rates out of British 
Columbia ports as low as $7.00?" 



114 

Mr. Wheelwriglit : 

^ ^ No ; it could not be done now, nor any time since 
the war. ' ' 
Commissioner Parry : 

^^Nor since the canal was opened." 
Mr. Wheelwright: 

^'But we have had ships ourselves under charter 
at rates that would enable us to do it at $7.00. At 
three shillings and sixpence a ton you can take lum- 
ber around at $7.00 a thousand without any trouble 
at all, but still three and six was rather a low rate. ' ' 
Mr. Wheelwright's statement is important — as com- 
ing from one engaged in shipping and in the buying and 
selling of lumber, and speaking from an independent 
standpoint. 

Mr. 0. M. Clark at the same hearing (Tacoma Rec, 
p. 132) confirms all that Mr. Wheelwright says. 
Mr. Clark stated: 

*^I will also say Mr. Wheelwright referred to 
British Columbia. The difference that he claimed 
between the cost of shipping I think was about right, 
but in order to give you an illustration, I will say 
that at about the same time a cargo went from Brit- 
ish Columbia to New York another cargo went on a 
foreign bottom from Columbia River to Quebec. Now 
at that time the New York market was paying for the 
same identical cargo that went to Quebec $3.00 or 
$4.00 more. Now if we could have used a foreign 
boat or had a boat that would have delivered that 
cargo from the Columbia Eiver to New York at the 
same price as it would to Quebec, a much longer haul, 
the mill man would have had the advantage of that 
$3.00 or $4.00.'' 
At page 81 of the Tacoma Hearing, Mr. Skinner said: 
Mr. Bloedel: 

'^Will you say a word as to the Panama Canal 
tolls and how it has affected us and may affect us 
in the future?" 

Mr. Skinner: 

' ' Of course ; if the Panama Canal^ tolls are sup- 



115 

posed to offset the difference in cost between foreign 
vessels and the British Colnmbia ports and onr ports, 
^^If we are to live under that law and the inter- 
costal laws, I do not know how we can compete with 
them. If we can, have a change in the laws without 
paying anything to the ship owners, then I think that 
the Panama Canal tolls will not be an important f ac- ' 
tor, because we can build vessels and operate them 
as cheaply as foreigners. 

*^We must have either a differential of Canal tolls 
or more charge against a foreign ship, or else we 
have got to be able to use some facilities equally as 
cheap as theirs.'' 
If necessary, proof without end could be submitted 
showing the difference in charters as between domestic 
vessels engaged in domestic trade and foreign vessels 
engaged in trade between ports of the United States and 
foreign ports, on voyages of the same or greater length. 
That this is true is so generally known that we assume 
that the Commission is interested not simply in the fact 
that a difference exists, but in the amount of such dif- 
ference. At times it has been suggested that the differ- 
ence in charters as between British Columbia ports and 
Pacific Coast ports will be offset to some extent by the 
fact that the vessels engaged in the trade between ports 
of the United States as compared with British- Columbia 
ports will have enough advantage in cargo both ways 
and in regularity of schedule to enable them to name 
rates more nearly on a par with British Columbia rates. 
This suggestion leaves out of consideration certain im- 
portant facts. Domestic vessels will charge all they can 
get; regular lines built for carrying merchandise and 
general cargo can handle only limited amounts of lum- 
ber. Charters to or from British Columbia will not de- 
pend on rates charged by American vessels; and if the 
British Columbians are as progressive and as aggres- 
sive in this trade as they are in other trades, through 
their government, if in no other way, they will have the 
regular sailings necessary. The dominant facts, how- 
ever, are that the regular lines are not fitted to care for 



116 

this trade; and if they were there is not sufficient ton- 
nage in sight, nor can enough American built ships be 
secured for a long time to come, properly to care for 
this trade. 

(c) The Panama Canal. 

While this Commission necessarily has nothing to do 
with the operation of the Panama Canal, in order to 
treat the matter on hand in orderly sequence this sub- 
ject must be referred to. Beyond question the lumber 
interests on the Pacific Coast were concerned in the toll 
question, were pleased when the law was passed exempt- 
ing domestic trade from tolls, and disappointed when 
this law was changed and tolls imposed on domestic com- 
merce. They felt that the exemption from tolls to some 
extent offset the advantages their British Columbia com- 
petitors enjoyed through the operation of our navigation 
laws. The repeal of this provision of the Panama Act 
placed foreign ships upon the same basis as those flying 
the American flag, and left the competitive situation, 
both as to charters and as to the ability to secure ton- 
nage, as above described. 

Unfortunately the opening of the Panama Canal was 
almost synchronous with the declaration of war in Eu- 
rope. War was declared August 1, 1914, and the Canal 
was opened August 15, 1914. While some lumber moved 
to the Atlantic Coast through the Canal, the lack of ton- 
nage and the high rates handicapped its use. With the 
great advance in charters in other trades, vessels pulled 
out of the Coast to Coast trade, which still further ac- 
centuated the dearth of available tonnage. 

In addition to the foregoing, the following facts are 
of interest. The growing tendency among the few ship 
owners engaged in the transportation of lumber not only 
to transport the product but to merchandise it as well is 
a serious problem with the manufacturer. One large 
shipping concern operating between the Coasts is a gen- 
eral merchant as well as a lumber merchant. This com- 



117 

pany ostensibly has space for sale, but it cannot be se- 
cured, as they use it for their own purposes. The little 
space on the other lines is usually contracted for by one 
man, and the public has no access to it. The only relief 
for an independent manufacturer is to pick up an odd 
vessel here and there, such as may be offered, and that 
means a very high price. 

It is conceded that the question raised by these facts 
is one that requires study. Our original maritime com- 
merce was developed by the trading ship owners. The 
question, however, now is whether through the use of 
the Panama Canal the right of being both a public car- 
rier and a dealer at the same time might not in a meas- 
ure be curtailed. The carrier is a competitor with the 
producer. Take W. R. Grace & Co. as an illustration. 
They are large ship owners. They give no space, as a 
rule, to another mill. They buy their lumber in this 
country. This method has a tendency to put the control 
of this market in their hands. If all ship owners did 
this — and two or three others have started to do it — the 
producers and the community together would suffer. 

Some manufacturers own ships; but this is not the 
case to any great extent. They are not in the shipping 
business. (Bloedel, Tacoma Hearing, pp. 13 and 14.) 
It must be plain whither this condition leads. If the con- 
trol of the domestic transportation by sea is to be vested 
in the hands of a few, rates will be named that will ab- 
sorb all the possible profits of the manufacturer, and he 
will not be one whit better off than he was before the 
Canal was opened. To this class of dealer the lumber 
industry and its operations are of no particular conse- 
quence. Having control of the transportation he has the 
whip hand and it is immaterial to him from which source 
the profits come, in freights, or in the lumber. The in- 
evitable tendency, however, is to bear the market to the 
lowest possible point — an experience which we on the 
West Coast are going through — and to place such deal- 
ers in a position on the East Coast, where no Pacific 



118 

Coast manufacturer can compete with tliem. No manu- 
facturer is afraid of competition on even terms, but a 
combination of this kind cannot be beaten. In other 
words, in this as in other trades, transportation is a pre- 
requisite to commerce. 

(d) 'Relief Suggested. 

The intolerable situation outlined above has led those 
engaged in the industry to give serious consideration to 
securing some measure of relief. At the last session of 
Congress Senator Jones of Washington offered an 
amendment to the emergency shipping bill which would 
allow foreign vessels which came under the American 
flag to engage in the inter-coastal trade. The amendment 
was first accepted by the Senate, but later stricken from 
the bill. While, as in all issues, there are differences of 
opinion, it is believed that the proposal made in a paper 
submitted by Mr. A. B. Hammond at the hearing in San 
Francisco, entitled, '^Inter-coastal Maritime Transporta- 
tion" (San Francisco Hearing, p. 42), represents the 
views of the large majority of those engaged in the lum- 
ber industry on the Pacific Coast. 

The gist of Mr. Hammond's proposition, as applied to 
the domestic trade, is that any vessel, no matter w^here 
built or how acquired, which is American owned and flies 
the American flag, may engage in domestic trade between 
parts of the United States on exactly the same terms as 
though built in this country. In other words, when the 
American flag flies at the peak, such vessel is for all pur- 
poses, if American owned, entitled to every privilege 
which that flag gives. Mr. Hammond contends that by 
so doing, 'Hhe consumer in the East and producer in the 
West would be in a fair way to realize the goal of each, 
which spells the welfare of the country, 

'' namely, cheap and efQcient transportation through 
the Panama Canal." 

Mr. Hammond supports his views by both facts and 
argument and makes a part of his paper an excerpt from 



119 

a speech made by Congressman Rufus Hardy. As the 
paper is printed in the record, we will not extend it here ; 
bnt among other important things, Mr. Hammond says : 

^'It is commonly understood that today the ca- 
pacity of existing United States ship building yards 
is contracted for until after the year 1917. For the 
meantime and until the United States shipbuilder 
realizes his world opportunity (when he will no 
longer oppose free ships in our intercoastal trade) 
we must be privileged to purchase foreign built bot- 
toms for that trade. ' ' 

, Reviewing the facts we find : 

1. Wholly inadequate shipping facilities for domestic 
trade. 

2. Such facilities as exist are in the hands of a few. 

3. Some of the lines, while ostensibly acting as com- 
mon carriers and quoting rates, are using all available 
space for their own purposes. 

4. When space can be secured, high and almost prohibi- 
tive rates prevail. 

5. Foreign built vessels are allowed American regis- 
try, but are not permitted to engage in coastwise trade 
of the United States. 

6. The Panama Canal is open on equal terms to ships 
of all nations. 

7., British Columbia is in a position to use ships un- 
der any flag between its ports and those of the United 
States. 

8. Citizens of the United States are limited in the 
coastwise trade to the use of vessels built in the United 
States and flying the American flag. 

(e) Results. 
The results necessarily following from the foregoing 
facts are: Control of transportation by water between 
the Atlantic and Pacific Coasts; inadequate facilities; 
high rates; inability of both producer and consumer to 
secure the benefit of the Panama Canal; limitations of 



120 

markets ; and the giving of unfair advantages to foreign 
competitors as against American producers in the mar- 
kets of the United States. 

And all for what purpose! 

After nearly a century has elapsed, and with condi- 
tions entirely changed, it may safely be said that the 
laws of 1817 can stand an overhauling and a modifica- 
tion. The relief suggested, while not full and complete, 
would be a long step toward securing an American mer- 
chant marine and furnishing relief in our domestic mar- 
kets to producer and consumer alike — in other words, to 
the general public. 

We have assumed that when it is generally understood 
how deeply the public welfare is concerned in this great 
question of water transportation, deep sea or coastwise 
relief will not be long delayed. 

CANADIAN BRITISH COLUMBIA. 

(l) Forest Policy. 

The attitude of British Columbia towards its lumber 
industry is that of a partner. The Government feels it 
to be its duty as well as its interest to aid the indus- 
try in every way possible. Accordingly we find the For- 
est Branch of British Columbia more active than is our 
Forest Service, under the stimulus of their own Gov- 
ernment's attitude, in furthering market extension, en- 
couraging home production, advertising the product, and 
through its own agencies aiding the manufacturer. When 
we consider the vast supply of timber in British Colum- 
bia, of substantially the same kinds as ours, and appre- 
ciate the fact that it is sold in the same markets and 
for the same uses, it is apparent that the competition 
from this territory must be recognized as a powerful 
factor if all phases of our own lumber problem are to be 
understood. 

There is no question as to the governmental policy of 
British Columbia toward the industry. It appears in 



121 

every law and in every act. The attitude of the Forest 
Branch is best expressed by its representative: '^It is 
our business to help the industry in every possible way. 
We are practically in partnership with it." This ex- 
tends not only to export but to domestic trade as well. 
The entire subject is handled methodically and intelli- 
gently, with the fixed and definite purpose of furthering 
and fostering the industry in every way possible. 

In the report of the Eoyal Commission of Inquiry on 
Timber and Forestry, 1909-1910, at page 20, after dis- 
cussing the amount of standing timber in the Province, 
the Commission says : ^ ^ To cap the climax, the Provin- 
cial policy has made the Government a sleeping partner 
in forest exploitation — a sharer in the profits of the lum- 
bering industry. ' ' 

We quote from the Eeport of the Forest Branch, 1914, 
above cited (after discussing the bad condition of the 
industry, at p. 6) : 

^^I cannot too strongly urge that the most impor- 
tant duty of the Forest Branch at the present time 
is to assist in extending the markets for British 
Columbia's forest products. If the present opportu- 
nity is lost the lumber industry of this Province will 
have a long uphill fight in establishing its position.'' 

(At page 22) : 

^^The Prairie market has never yet in any one 
year taken over 60% of the output of these mills ; the 
export market has not in any one year in the past 
decade taken 4% of the annual output. Manifestly 
the only relief which will enable the lumber industry 
to meet its obligations is an extension of export mar- 
kets. " (Italics ours.) 

(At page 23) : 

^'The extension of markets for British Columbia 
is such a public necessity that it should engage the 
attention of the Government as the largest share- 
holder and as trustee of the public prosperity, though 
obviously no great improvement can be expected 
until the selling price of lumber is again greater 
than the cost of producing it. " 



122 

(At page 24) : 

''The Government can rightfully help the lumber 
industry to advance into new markets in three ways : 
Firstly, by furnishing the lumberman data as to the 
strength and other characteristics of our timber for 
advertising purposes ; secondly, by studying foreign 
markets and supplying information to the trade; 
thirdly, by making British Columbia products known 
in the markets which British Columbia manufac- 
turers are endeavoring to enter.'' 

Quotations of a like tenor could be continued indefi- 
nitely, but the above are sufficient to give a fair view of 
the attitude of the British Columbia Government toward 
the lumber industry. Since the publication of the Re- 
port quoted, Mr. H. R. MacMillan, Chief Forester, has 
made a world-wide trip visiting various parts of the 
British Empire with the purpose of putting into practice, 
so far as he could, the recommendations made by him. 

It is, and for years has been, the settled policy of Brit- 
ish Columbia to require that all timber be manufactured 
in the Province. This policy has crystallized into law. 
The Lieutenant-Governor in Council may within certain 
limits permit export of certain kinds of timber, but the 
rule is as stated. The laAv prohibiting the export of logs 
does not apply to Crown Grant lands or to Dominion 
lands. 

In order that there may be no question as to the sub- 
stance of this policy, we quote from the above-cited Re- 
port of the Forest Branch, 1914, p. 20 : 

''The life of the lumber industry is the export 
trade. The population of the Province, which in 
1912 and 1913 used one-fifth of the lumber used in 
the Province, does not now use one-twentieth. Thus 
the market for British Columbia forest products 
must be found almost wholly outside the borders of 
the Province. 

' ' The policy of the Government for over a quarter 
of a century has been to restrict the export of un- 
manufactured products in order that a manufactur- 
ing industry based upon our large supplies of raw 



123 

material might be built up. Thus the export of logs 
is restricted to timber cut from lands Crown- granted 
prior to 1906. Export is rigidly supervised by an 
export patrol and by cooperative arrangement with 
the Dominion Customs authorities. Two seizures 
were made during 1914, for attempted export of im- 
properly marked logs, while another case of at- 
tempted export in defiance of the Provincial Statute 
was frustrated by the inability of the exporter to 
secure clearance. ' ' 

(2) Thnber Supply, 
The report of the Royal Commission of Inquiry on 
Timber and Forestry, 1909-1910, while conceding it was 
largely a question of conjecture, estimated the stand in 
British Columbia to be ^^240 billion feet or more'' (p. 
207). Since then, with more accurate information, Mr. 
H. D. Langille, one of the men best informed on the in- 
dustry generally, places the stand at 335 billion feet. 
Based upon actual cruisings and comparisons in regions 
west of the Cascade Mountains, he makes the following : 

Comparison of Species. 

Oregon. British Columbia. 

Douglas Fir 82.3% 21.3% 

Cedar 2.4% 34.4% 

Western Hemlock 9.1% 28.5% 

Spruce 2.1% 4.3% 

Silver Fir 1.5% 11.0% 

Miscellaneous ' 2.6% 0.5% 

Average stand per acre 41.6 M feet 22.2 M feet 

Similar figures for Washington have not been com- 
piled, but the percentage of cedar is greater in Wash- 
ington than in Oregon (Am. Forester, Feb., 1915, pp. 
131-133). 

It will thus be seen that, while the percentage of each 
species varies, yet, speaking generally, the forests on 
either side of the line are alike as to kinds. It will be 
noted there is a marked diiference in the cedar supply, 
as there is in the fir. British Columbia has much the 
larger stand of the former, while the reverse is true of 



124 

tlie latter. There is also the further distinction that the 
stand of cedar, in both Oregon and Washington, is largely 
interspersed with fir, whereas in British Columbia cedar 
occurs in almost pure stands over wide areas, both along 
tide waters and inland. This fact has quite an impor- 
tant bearing on the manufacture of shingles and the com- 
petitive situation in that branch of the industry. 

(3) Tenure, 
(a) Three Main Forms. 
Roughly speaking, the timber land policy of British 
Columbia divides itself into three periods : prior to the 
year 1888, 1888 to 1906, and 1906 to date. Originally 
lands were sold in fee and known as Crown Grants. Un- 
der this system title passed to the grantee, and the lands 
were taxed like other real property. Later a plan was 
evolved under which the public interest, both in the tim- 
ber and the successful operation of the industry, is rec- 
ognized. Holdings under different timber tenures are 
as follows (figTires for 1913) : . 

Crown Grant, including railroad lands 1,669,199 

Leases 945,000 

Licences 8,460,000 

(Eep. The Forest Branch of the DeiDt. of Lands — 1914 — 
p. 12.) 

It will thus be seen that by far the larger percentage 
of timber held by individuals is under licence. Laws 
have been enacted making it expedient for lease holders 
to exchange their leases for licences. On December 24, 
1907, the Province ^'reserved from alienation under the 
Land Act by way of timber licence ' ' all of its remaining 
forest area, and subsequently put into effect a sale sys- 
tem similar to that followed by our Forest Service. No 
timber, therefore, may now be acquired except by pur- 
chase under licences to cut. 

A licence covers what is termed a ^* limit." A limit 
may not exceed 640 acres. It may be less, but cannot be 



125 

more. The number of licences one may hold is not lim- 
ited. A licence conveys only a right to cnt the timber^ 
the title to the land not passing. The annual fee on each 
licence is $140 west of the Cascades, and $100 east of 
them. An annnal charge of 1% cents per acre also is 
now made for fire protection. A royalty is paid when 
the timber is cut. 

As the method used to determine the royalty marked 
a new departure in the disposition of timber by any 
government, we quote from the report of the Forest 
Branch of the British Columbia Department of Public 
Lands, for the year 1914, at pp. 6 and 7 : 

^^ Since under the system of timber licences the 
Crown and the licencees share between them the 
stumpage value of the timber held, the main object 
of the Act was to define the terms of the partnership. 
As security of tenure was essential for the develop- 
ment of the lumbering business, it was necessary to 
provide for a long term of years. Future changes in 
stumpage values, however, can only be guessed. 
Hence a sliding scale had to be devised in order that 
the stumpage obtained by the Government in time to 
come might reflect any change in timber values, up 
or down. 

^' Since these values are the difference between 
selling-price and cost of manufacture an exact deter- 
mination of royalty could only be made after a com-, 
plete audit of the books of every operating concern. 
As a practical matter the sliding scale had to be 
based on some simpler method than this, and accord- 
ingly the average selling-price of lumber was taken 
as the barometer of stumpage value. A certain in- 
itial increase, to take effect at the year's end, was 
made in the existing royalty ; no further increase was 
to be made until the selling-price of lumber had 
passed the $18 level ; and the future was provided for 
by enacting that the stumpage payable to the Crown 
at any future date should be the 1915 royalty plus a 
certain percentage of the increase in the average 
selling-price of lumber over $18. 

' ' This ^ Timber Eoyalty Act ' attracted a great deal 
of attention in other countries, and was much dis- 



126 

cussed in tlie press as an important example of 
advanced legislation. A summary of its provisions 
is as follows : 
^ ^ 1915-19 : Royalty, 85 cents and 50 cents on grade, 

for Coast districts; 50 cents on British Columbia 

rule for Southern Interior ; 65 cents for Northern 

Interior. 
^* 1920-24 : Royalty increased by not more than 25% 

of any increase over $18 in average selling-price 

of lumber. 
^'1925-29: 30% of increase over $18. 
^'1930-34: 30% of increase over $18. 
*^ 1935-39: 35% of increase over $18. 
<< 1940-44: 35% of increase over $18. 
^'1945-49: 40% of increase over $18. 
'^ 1950-55: 40% of increase over $18. 

*^In order to obtain the necessary data upon which 
this sliding scale will be based, the average whole- 
sale selling-price of lumber in the Province must be 
ascertained each year.'' 

It will be noticed that the annual charge is fixed for 
the entire term; and, while it represents a fair tax, it is 
a distinct recognition of the principle that standing tim- 
ber should (for obvious reasons) be classified by itself 
and not be subjected to the ordinary rules of taxation, 
if it is to be conserved for its best use. In this, as in 
other respects, British Columbia has dealt both wisely 
and practically with the problem. A resume of the his- 
tory of forest alienation follows. 

(h) Acquisition of Forest Lands. 
(I) Crown Grants. 
In the earliest days of the Province of British Colum- 
bia timber lands were acquired by purchase at the same 
rates as any other land, or else by grant from the Crown. 
Such grants were made without reservations of royalty, 
and the export of logs was not prohibited. There were 
no restrictions as to the area which might be purchased. 
In 1888 a royalty of 50 cents per M feet was imposed 
upon such timber lands as might subsequently be Crown 
granted. 



127 



(II) Leases. 

As early as 1870 leases were authorized. No limit was 
placed upon the extent of the lands to be so acquired and 
their tenure appears to have been perpetual. The pur- 
pose seems to have been to encourage cutting and manu- 
facturing. Again, in 1888, the terms of leases were lim- 
ited to 30 years, the annual rental was fixed at 10 cents 
per acre and a royalty of 50 cents per M feet was re- 
served on logs cut ; the lease containing provisions bind- 
ing the lessee to erect a mill ^* capable of cutting not less 
than 1 M feet per day of twelve hours for each 400 acres 
included in such lease." A ground rent of 5 cents per 
acre was imposed on leases granted since 1879. In 1891 
a deposit of 10 cents per acre was required and authority 
was given to the executive to impose other conditions. 
In 1892 it was provided that leases should be offered to 
competitive bidders; and an amount equivalent to 10 
cents per acre was required as a guarantee that a mill 
would be built. The term was reduced to 21 years. In 
1895 it was enacted that thereafter leases could be ob- 
tained only of surveyed and unpreempted Crown tim- 
ber lands previously offered to competitive bidding and 
the rental was increased to 15 cents per acre ^^ subject 
to reduction to 10 cents on acquisition of a sawmill ap- 
purtenant to the leasehold." In 1899 it was provided 
'^that if the royalty and rental paid on timber cut from 
a lease should amount together to less than 50 cents per 
acre then an additional rental should be paid making the 
total equivalent to 50 cents per acre;" and the required 
mills were to operate at least six months in every year. 
In 1901 provision was made for the renewal of leases for 
consecutive and successive periods of twenty-one years 
on such terms as might then be in effect. Pulp leases 
were provided for in that year. In 1903-1904 the grant- 
ing of pulp leases was discontinued, and the ground 
rental on timber leases was raised to 25 cents, with pro- 
visions for reduction to 15 cents if mills of a prescribed 



128 

capacity were operated. In 1905 the granting of timber 
leases was abolished. Throughout this period the roy- 
alty of 50 cents per thousand was collected. 

From the foregoing it will be seen that the outstanding 
leases differ in many particulars, and their value hinges 
upon the particular act under which they were issued. 

Finally, in 1915, provision was made for the substitu- 
tion of licences for existing leases and, in cases where 
the leases are such that the lessee may not expect to cut 
over during the life of the lease, such substitution is 
being generally accepted. 

(Ill) Special Timber Licenses. 

Also in 1888 the right to cut timber under licence on 
Crown granted and patented lands was granted under 
such conditions as might be imposed. The area was 
limited to one thousand acres and the period to one year. 
The licence was not transferable ; and not more than one 
special licence could be held by one person at the same 
time. The fee was $50. The licence might be renewed 
at the discretion of the commissioner and a royalty of 
50 cents was fixed. 

The purpose of the Act making these provisions seems 
to have been to encourage lumbering, and so to aid the 
development of the province; but, as in the case of our 
OAvn public timber lands, the incentive of speculative 
value was required to awaken interest. A single limit, 
like a single quarter section, had no value within itself. 
Up to 1904, or during a period of 6 years, only 1,451 
licences, embracing 928,640 acres, were issued. In 1894 
the first provision was made for staking licences upon 
unpatented Crown lands; and in 1901 the area was re- 
duced to 640 acres and the annual fee increased to $100. 
In 1903 the annual fee was increased again to $140 west 
of the Cascades and $115 east of the Cascades; and 
licences could be taken out for periods not exceeding 
5 years, upon payment in advance of the full amount. 

In 1905 a radical change in the licence system was 



129 

made. Like our own states, the province needed returns 
from its domain, and inducements were offered to those 
who would assume ownership and contribute to the sup- 
port of the government. It was enacted that all special 
timber licences which might thereafter be issued should 
be transferable and renewable each year for twenty-one 
years. 

Thus licences were given speculative value and an 
immediate demand developed. Locators went forth into 
remote and unknown districts and staked the best tim- 
ber, to the fullest extent of their ability to meet the re- 
quired payment of licence fees. Many took chances on 
finding some person who would finance the stakings on 
the meager showings made as to the character of the 
timber found. Speculation was rife. Transfers were 
made at prices ranging upward from $1 per acre, and 
within three years nearly 12,000 licences passed to in- 
vestors. A substantial income to the province was 
thereby secured. 

On December 24, 1907, all unalienated timber in the 
Province was reserved, ''thus keeping in the possession 
of the Government all timber lands not already taken up 
under Crown grant, lease or licence. ' ' At that time over 
15,000 licences, embracing a nominal area of 9,600,000 
acres, were outstanding. 

The lines of definite survey, since required, were per- 
mitted to depart from the original stakings, and the 
boundaries are so established as to include, so far as pos- 
sible, all of the most desirable timber. When such sur- 
veys were made many licences were dropped owing to 
insufficient space, or stands of timber insufficient to jus- 
tify carrying them. A classification of the unalienated 
lands may disclose extensive areas of forest lands. The 
irreg-ular fringes bordering the alienated lands will 
doubtless be sold as logging operations extend over the 
private holdings. 

The system under which Crown timber may now be 
acquired is modeled after that adopted by the Forest 



130 

Service. The ^'Forest Act," as passed February 27, 
1912, and as amended in 1913 and 1915, lodges authority 
on the Minister of Lands to ^'from time to time offer 
for sale and sell by public competition a licence to cut 
and remove any Crown timber remaining undisposed of 
at the time of the passing of this Act." (See Sec. 2, 
Chap. 26 of the Statutes of 1913 as amended by ''An Act 
to amend the Forest Act," 1915.) 

(4) Export Tax and Tariff. 

(a) Export Tax. 

On account of the war, export of logs from British 
Columbia has been allowed. The purpose of the change 
and the amount of the export duty is thus stated in the 
Forest Branch Eeport, quoted above, p. 20: 

' ' To minimize the effects of the trade depression 
due to the war it was found advisable on a temporary 
measure to allow export of logs from any lands upon 
the following rates : 

Grade 1. Grade 2. Grade 3. 

Cedar $2.00 $1.50 $1.00 

Fir 50 .50 .50 

Spruce 2.00 1.50 1.00 

Pine 2.00 1.50 1.00 

Hemlock 50 .50 .50 

Balsam and Larch 50 .50 .50" 

Of the logs exported in 1914, 41,660,300 feet B. M., or 
about 70%, were cedar. 

(b) Tariff. 

British Columbia has an import tax on lumber, an 
export tax on logs, and preferential tariffs with two> 
other British Colonies; and it is the settled, accepted 
and openly avowed policy of the Province to extend the 
preferential system as rapidly as possible. 

"What might be termed the ''regular" duty on lumber 
is 25% on all lumber planed on more than one side. 
Now, under a general war tax, there is an additional 



131 

duty of 7%%. South Africa allows a preference of 10% 
in its duties in favor of tlie British Columbia products. 
New Zealand allows a preference of 10% in its duties on 
sash and doors, wooden ware and veneer, and on manu- 
factured wood products generally. At the present time 
New Zealand has no preferential duty on lumber. In 
the near future, no doubt, preferential duties on lumber 
between British Columbia and other British possessions 
will be the rule rather than the exception. 

(5) Rail and Water Rates. 

To substantially all United States markets of any 
consequence the rail rates are the same from British 
Columbia mills as from mills in the Pacific Coast states. 
Eail rates from the United States to Canadian markets 
are the same as those from competing Canadian mills. 
To foreign markets it may be assumed that charter rates 
will be substantially alike. Under existing laws, how- 
ever, the British Columbia mill has a decided advantage 
in shipping to American markets. The breaking out of 
the war almost simultaneously with the opening of the 
Panama Canal, the resulting widespread disorganiza- 
tion of shipping, the scarcity of tonnage and the enor- 
mous demand for it in other directions, coupled with 
abnormal rates, has, it is true, so far prevented the 
British Columbia mills from profiting by that advantage ; 
but it nevertheless exists. From one port to another in 
the United States only ships flying the flag of and built 
in the United States may operate. From British Co- 
lumbia ports to ports of the United States ships under 
any flag may carry the products of our mills. The result 
is that, ordinarily, charters to Atlantic ports of the 
United States are from $2.50 to $3 less per thousand 
from British Columbia than from the Pacific Coast ports 
of the United States. Unless this state of affairs be 
remedied in the future, it will constitute a very serious 
handicap to the lumber industry of the Pacific Coast. 



132 

(6) Labor Conditions and Mill Supplies. 

Without entering into a comparison of manufacturing 
costs in the United States and British Columbia, it is 
sufficient to say that tlie laws of British Columbia pro- 
hibit the employment of Oriental labor in the woods ; and 
it seems to be the general opinion that logging operations 
cost more on the other side of the line than on this. In 
and about the mills, both saw and shingle, the employ- 
ment of Orientals, to a greater or less extent, is uni- 
versal. In the shingle mills by far the larger number 
of laborers are Chinese. At the present time American 
machinery is in general use ; but this use is decreasing, 
and under the Dominion's policy, coupled with the loy- 
alty of the Canadian lumbermen, the decrease will in the 
future become more marked. Whether this will result in 
materially decreased cost of supplies and machinery is 
not probable. 

It must be remembered that we do no more than state 
facts of a- general nature. Our purpose in thus stating 
the conditions in British Columbia is solely to call the 
Commission's attention to a factor that must be con- 
sidered in any study of the lumber industry in the 
United States. British Columbia lumber is strictly com- 
petitive in all markets, and under the aggressive policy 
of British Columbia in furthering and aiding the indus- 
try, it is a most important factor. 

THE EXPORT TEADE. 

(1) Introduction. 
Of late years probably no question has been the sub- 
ject of more discussion in the commercial world than the 
need for combination and its legality in connection with 
export business. The importance of the development of 
foreign trade is so obvious, and the cost and difficulty 
attendant upon one entering into competitive fields so 
apparent, that those who have considered the problem 
seriously have naturally and independently been led to 



133 

tlie same conclusion — the necessity of cooperation. It is 
common knowledge that foreign governments liave long 
since not only recognized the necessity for cooperation as 
between the producers, but have gone further and prac- 
tically entered into partnership with their business men. 
In many foreign countries are found domestic combina- 
tions largely controlling both ends of the trade — the pur- 
chase and the sales price. The doubt and the uncertainty 
of the applications of the Sherman Act, together with 
vigorous prosecutions of violations regardless of the mo- 
tive of the violators, may have made the business man 
of this country unduly cautious or timid ; but such is the 
condition, and, until there is direct legislative action or 
judicial construction by the court of last resort, uncer- 
tainty and the natural desire to live within the law will 
unquestionably have a deterrent effect on the expansion 
of our foreign trade. 

Those familiar with the discussions leading up to the 
enactment of the Federal Trade Commision Act and the 
Clayton Act will remember that the foreign trade ques- 
tion was an exceedingly live one. No affirmative action 
was taken by Congress to clear up the doubt as to whether 
or not combinations for export trade only were within 
the prohibitions of the Sherman Act, but this Commis- 
sion, under paragraph ''h'' of Section 6 of the Act, was 
given power '^To investigate, from time to time, trade 
conditions in and with foreign countries where associa- 
tions, combinations, or practices of manufacturers, mer- 
chants, or traders, or other conditions, may affect the 
foreign trade of the United States, and to report to Con- 
gress thereon, with such recommendation as it deems ad- 
visable." Pursuant to this power, the Commission has 
held hearings throughout the country, and has doubtless 
by other means conducted investigations connected with 
this subject. We do not understand it to be the purpose 
of this brief to enter into an academic discussion of the 
question in general, but rather to present the attitude of 
those engaged in the lumber industry and their reasons 



134 

for favoring combinations in export trade. Neither do 
we understand an elaborate discussion of the law to be 
either desired or desirable. Consequently we will de- 
velop this feature only as far as may be necessary to a 
proper consideration of the suggestions that may be 
made. 

(2) Distribution and Volume. 

Taking the years 1911 to 1913 as typical, the dis- 
tribution of export lumber to various countries is, in the 
order of importance, as follows : Australia, New Zea- 
land, West Coast of South America, China and Japan 
(China taking much the greater amount). United King- 
dom and Europe, Africa, Mexico and Central America, 
other foreign countries. From 1906 to 1914, both years 
inclusive, the average foreign lumber shipments per 
annum from Oregon and Washington, as shown by fig- 
ures furnished by the Pacific Lumber Inspection Bureau, 
amounted to 432,492,557 feet; from British Columbia, 
59,286,105 feet. Business for part of the year 1914 and 
all of the year 1915 was seriously affected by the war, 
and has but little value in the consideration of this 
branch of the subject, although in connection with an- 
other phase, to which we will refer later, it is most sig- 
nificant. 

The export business for the year 1913 may be consid- 
ered fairly typical, both in amount and distribution. The 
foreign shipments of lumber from Oregon, Washington, 
and British Columbia for that year amounted to 600,142,- 
246 feet B. M. ; of these, 10,465,868 feet B. M. were lath, 
3,959,376 feet B. M. pickets, and the balance lumber. 

The lumber went to the following countries in the order 
and amount as follows: 

Countries. Feet, B. M. 

Australia and New Zealand 247,385,467 

AVost Coast of South America . , 123,636,400 

<^'^ina 106,429,576 

XL K. and Continent 45,540,955 

Africa 22,575,879 



135 

Japan 21,188,943 

South Sea Islands 11,893,020 

India 10,571,652 

Mexico and Central America 6,491,267 

East Coast of Sonth America 4,429,087 

Total 600,142,246 

While there has been a considerable growth in this 
business, it has not been as rapid or as regular as was 
hoped. As an illustration: In 1907 the foreign ship- 
ments were 430,565,296 feet B. M. ; in 1909, 342,195,389 
feet B. M. Notwithstanding the increase in exports to 
the United Kingdom and the Continent (chiefly for war 
purposes) from 32,000,000 to 83,000,000 feet B. M. in the 
first nine months of 1915, the export lumber shipments of 
Oregon, Washington and California, as compared with 
the same period in 1914, fell from 431,505,774 feet to 248,- 
154,018 feet, a loss of 183,351,756 feet. 

(3) Kinds of Lumber Exported. 

While it is our purpose later to discuss this question 
more in detail, it may be well to give certain facts here. 
In general, it may be stated that the export trade is not 
to any large extent restricted to the higher grades, and 
that if the industry were able to cooperate fully in the 
foreign trade a still greater percentage of low grade lum- 
ber would go foreign than is now the case. 

Australia takes the highest class of merchantable lum- 
ber. This is owing to a variety of causes, not the least 
of which is the tariff which is graded according to size, 
the large sizes taking the lower tariff in order to promote 
manufacturing in Australia. This results in the export 
of large sizes for manufacture. Practically no clear lum- 
ber is shipped to Australia, as clear, except red wood 
from California. Flooring and stock of a like character 
comes from the Baltic. Port Pirie, the port of a mining 
section in Southern Australia, takes a very considerable 
quantity of lumber of low grade for mining purposes. 
China, a large and increasing lumber using country, takes 



136 

the lower grades. Specifications for this country call for 
50% merchantable and 50% No. 2 merchantable or com- 
mon. Such specifications take almost the entire product 
of the log with the exception of the clears and No. 3 com- 
mon, sometimes termed '^cnll." The West Coast of South 
America takes a high grade of merchantable lumber, but 
not so high as Australia. Large size squares running 
from 16x16 to 30x30 for resawing purposes cover the bulk 
of Japan ^s requirements. Africa takes about the same 
grade as the West Coast of South America. The United 
Kingdom and the Continent also take a high grade of 
merchantable timber, although specifications ordinarily 
call for timbers and plank. In addition to these, they 
take a considerable quantity of clear '' flitches" and clear 
vertical grain ship decking. 

Since we propose to discuss in detail the possible effect 
of the export trade on domestic trade, we Avill at this 
point content ourselves with simply saying that the gen- 
eral opinion is that such effect would be beneficial. 

(4) Present State of the Trade. 

It would seem hardly necessary to go to any great 
length in setting forth the facts of export trade in lumber 
before this Commission. Mr. D. E. Skinner, Mr. J. H. 
Bloedel, and others have on sundry occasions, and in 
detail, presented the facts to the Commission. However, 
in order to make clearer what we will say hereafter we 
will briefly set forth the conditions as they now are and 
have been for a long time past. Mr. D. E. Skinner, on 
behalf of the lumber industry of the Northwest, gave the 
facts at the Tacoma Hearing (Eec, pp. 66 to 82). From 
his, as well as from other reliable statements supported 
by independent investigations, it appears that the export 
business is as depressed as the domestic, if not more so. 
The business is handled largely by intermediaries or 
brokers who sell to the ultimate buyer in the export trade 
regardless of cost to the producer, and in many cases 



137 

regardless of cost to themselves. They compete among 
themselves to secure orders, anticipating the lowest price 
they dare make f. o. b. on the Inmber and on the freight, 
and will qnote delivered price six months to a year in 
advance. It is easy to understand that in competing 
among themselves to secure the business they do not 
assume that they will have to pay a very high price for the 
lumber. Their business is as much speculating in char- 
ters as it is buying lumber. Their control of the orders 
puts the manufacturer largely at their mercy. With the 
consuming demand in the hands of these middlemen the 
manufacturer is without means to exercise any control 
over the situation, and is forced to sell at cost or less ; 
and Mr. Skinner says: ''We do sell it at cost or less" 
(Rec, p. 18). 

Prior to the destruction in 1907 of the Port Blakely 
Mill by fire (Mr. Skinner is connected with this mill), 
80% of its export business was done direct with its cus- 
tomers. This practice has been eliminated; and the 
owners found, on reconstructing their mills, that the 
brokers had secured stich a hold of the market and prices 
that they could get as much from the broker as they could 
from a buyer direct. In other words, the brokers named 
the prices they had to sell at if they sold at all (Rec, 
Dp. 68, 69). ^ 

Wliat is desired is to eliminate the broker's dealing 
in futures and speculating in charters at the cost of the 
manufacturer. Mr. Skinner has not been to Australia, 
but states that it is his belief, and that the facts will sus- 
tain the statement, that there is a combination of buyers 
in Australia, where a large percentage of our exports go. 
We are advised that they have a buying as well as a sell- 
ing agency. We on this coast have learned that if a man 
is not acceptable to that combination, then we had better 
not sell to that man; otherwise we will have to depend 
on his trade instead of on the trade of the greater num- 
ber who are in the combination (Rec, p. 72). 

As tending to substantiate Mr. Skinner's statement we 



138 

quote from page 73, Chicago hearings, of the statement 
made by Mr. Howard P. King of Melbonrne, Australia: 

''We haye an association in Victoria and the tim- 
ber or lumber merchants meet and cooperate to- 
gether so as to tix prices. We have meetings similar 
to this to bring out a better feeling among the mer- 
chants. Some of the merchants break prices some- 
times. The association has been in existence for the 
last ten years, and it gives the smaller merchant as 
good a chance as the bigger merchant. ' ' 

In Australia, there is a differential in duty of 15 shil- 
lings on lumber shipped in sizes less than 6x12. The 
rate on 6x12 and over is 5 shillings, and the rate on under 
6x12 is 15 shillings and more.* The purpose is apparent' 
to compel lumber to be shipped there in such sizes that 
it must be re-manufactured there instead of here (Rec, 
p. 75). A strong effort is being made on the part of the 
British Columbia government to have the Australian 
government give the British Columbia manufacturers a 
differential in duty on lumber as compared with ours of 
5 shillings per thousand (Rec, p. 76). 

Confirmation of Mr. Skinner's belief is also found 
in a work published by Mr. H. L. Wilkinson and entitled 
' ' The Trust Movement in Australia ' ' ( 1913 ) . Beginning 
at page 101, Chapter 9, he deals with ''Combinations to 
Fix Prices in Timber and Brick Supplies and Printing.'* 

We take the following excerpts from the portion deal- 
ing with "The Timber Combine": 

"The position of the timber trade in Melbourne — 
and it is similar in several of the other capitals — is 
that the whole of the importation of the soft woods, 
which constitute the principal commodities in the 
timber business, is in the hands of half a dozen large 
firms, and these firms also have control over many of 
the hardwood mills distributed throughout the state. 

"These large firms practically constitute the inner 
ring of tlie Timber Combine. Thev have forced all 



* The duty on rough lumber into Australia is Is per 100 feet, or 10s per 
M for material 6x12 and over or its equivalent; 3s per 100 feet or 30s per 
M for 21^x7 up to 6x12; and 3s 6d per 100, or 35s for less than 2i^x7. 



139 

the other timber merchants into the Timber Mer- 
chants ' Association, and by the control this Associa- 
tion asserts, the smaller merchants have in reality 
become distributing agents for these large half-dozen 
firms who control the whole trade. The large firms 
dictate the policy of the Association, which says what 
amount of timber shall be imported and who shall 
import it, what retail prices shall be charged, and 
virtually dictates the conditions under which most of 
the sawmills and country timber merchants shall 
work. 

''The Formation of the Combine. 

' ' The whole of the importation of soft woods being 
controlled by the few large timber merchants, it was 
very easy for them to coalesce and force every 
builder and timber merchant to get their soft wood 
timber through them. This is how the combine 
started. Quite apart from any difficulties there may 
have been for the small merchant to finance a large 
shipment from Europe or America, the operations 
of the large firms prohibited him doing so. 

^^An example will show how this was done and 
how all were forced into the combine or association. 
At the time of the formation of the combine, a large 
suburban timber merchant and sawmill owner who 
was ^outside' the Association, in order to get sup- 
plies of soft wood, ordered a large shipment of Ore- 
gon. At the then selling prices this merchant would 
have been able to quickly realize on the shipment, 
make a fair profit, and meet the necessary payments 
to the American lumber mills. The combine or the 
Association members, having in their yards a con- 
siderable stock of this timber, immediately the ves- 
sel was reported as about to arrive, reduced the price 
of this particular timber. Needless to say, the subur- 
ban merchant lost heavily on the shipment, which 
had to be realized to meet the bills coming due from 
America. ' ' 

The report of Franklin H. Smith to the Department of 
Commerce, Special Agents Series No. 109, on ^^Austra- 
lian Markets for American Lumber '^ (1915) corrobo- 
rates Mr. Skinner 's statement. At page 9, he says : 



140 

^^ Owing to Australia's import duty discriminating 
on lumber as between dressed and undressed mate- 
rial and further discriminating between large and 
small sizes — ranging from $0,122 per 100 feet b. m. 
for undressed timber 6 by 12 inches (or its equiva- 
lent) or over to $0,973 per 100 feet b. m. for dressed 
timber — the bulk of the lumber or timber imported 
is undressed. The purpose (and it works out well in 
actual practice) is to force the importation of large- 
dimension, undressed timber, so that the labor and 

whatever profit may accrue shall go to Australia. 

## # * * * * * * 

^'In a preceding paragraph a reference was made 
to the differentials existing in the Australian tariff 
on undressed timber according to size. Three dimen- 
sions are recognized, namely, timber less than 2% 
bv 7 inches (or its equivalent), upon which the dutv 
is 3s. 6d. per 100 feet ($8.52 per M feet b. m.) ; tim^- 
ber 214 by 7 inches (or its equivalent) and upward 
and less than 6 by 12 inches (or its equivalent), upon 
which the duty is 3s. per 100 feet ($7.30 per M feet 
b. m.) ; and timber 6 by 12 inches (or its equivalent) 
and over, upon which the duty is Is. per 100 feet 
($2.43 per M feet b. m.) . Consideration of the figures 
given reveals, in large measure, the reason why large 
dimensions are in greatest demand. * * * 

'^Supplies of timber for the retail and wholesale 
yards in Australia are secured through the medium 
of brokers, of whom there are about 10 with sub- 
agents or brokerage houses representing them di- 
rectly or indirectly in the several cities. All the con- 
cerns are connected with the larger shipping houses 
in San Francisco, who place the business directly 
with the mills. As a matter of fact, one or two of 
the San Francisco concerns maintain their own rep- 
resentatives in Australia. With one or two excep- 
tions the Australian brokerage houses have connec- 
tions in London, as well as in Norway, Sweden, Ger- 
many, and Eussia, and handle both the timber from 
the United States and the Baltic material. Most of 
the business is done on the basis of a 2l^% commis- 
sion, though in times of stress even a smaller profit 
goes to the broker. * * * 

^^With the exception of only one or two, all the 
distributers of lumber in Svdnev and suburbs are 



Ml 

members of the association, which has succeeded in 
regulating the trade to an unusual degree. Forty 
concerns held membership in the organization in 
August, 1915. It might be expected that 40 yards 
catering to a population of less than three-quarters 
of a million people would create considerable com- 
petition. By the use of a universal price list, which 
is strictly adhered to by the members, and an under- 
standing as to what constitutes trade, price cutting 
and other business-getting features of the trade in 
the United States, for instance, have been elim- 
inated. * * * 

"Brokers Sell to Association Members Only. 

"In Sydney all timber business must go through 
the yards of the members of the association. Though 
the individual manufacturing consumers of lumber 
are few in number, they must obtain their supplies 
through some member of the association rather than 
secure the benefit of lower prices in getting a part 
of a cargo shipment direct. The enforcement of 
this condition is made possible through the insertion 
in a contract note (the printed form being issued 
by the Sydney & Suburban Timber Merchants' Asso- 
ciation) of the following clause : 

^ ^ ^ To facilitate cooperative lightering and tallying 
by the Sydney & Suburban Timber Merchants ' Asso- 
ciation this contract is subject to a rebate of 5% 
should the seller load or cause to be loaded in the 
same vessel any timber for anyone except members 
of the said association.' * * * 

'^Six yards, all members of the Timber Merchants' 
Association of South Australia, do all the business 
in imported woods in Adelaide and surrounding ter- 
ritory." * * * 

^'The trade of Perth and Fremantle is practically 
done by three yards, which combine in ordering a 
cargo from the United States. * * * 

^^ Following the largely increased expenditures of 
the Government incident to the war, further changes 
in the tariff looking toward the production of greater 
customs revenue are considered inevitable. The 
changes may prove of a serious nature to the lumber 
manufacturers in the United States, especially if a 



142 

preferential duty is extended to Canada, as may 
result from tlie agitation to build up the trade be- 
tween British possessions." 

On conditions in New Zealand, at page 41, Mr. Smith 

says : 

''TARIFF DUTIES— RAILWAY RATES. 

^'New Zealand's tariff on timber and forest prod- 
ucts is not excessive when compared with the tariff 
in effect in Australia. Owing to the need of greater 
revenue by reason of the heavy expenditures incident 
to the European war, it is possible that increases will 
be made in the tariff during 1915. The following are 
the timber schedules : 

Classification. Measurement. Duty. 

Timber, sawn, dressed. . 100 superficial ft. .4s. ($0.97) 
Timber, sawn, rough. . . do. . .2s. ($0.49) 

Shingles 1,000 pieces 2s. ($0.49) 

Lath do 2s.($0.49) 

Carriage shafts, spokes, 

and felloes, dressed. .Ad valorem 20% 

Bent carriage timber. . . do. , do. 

Doors and sashes, either 
plain or glazed with 

ornamental glass do. 30% a 

Woodenware and turn- 
ery, n. e. i do. ...... do.a 

Veneers do. do. a 

a These articles, when imported from the United 
Kingdom or the British dominions, pay only 20% 
ad valorem.'' 

It appears, however, that railway rates are named to 
protect the home product (p. 42) : 

''Higher Rail Rates on Imported Timber. 

''While Oregon pine, California redwood, and 
other imported timbers are not badly handicapped 
by the tariff in competition with native woods, an 
obstruction to their wider distribution exists in the 
railway rates. All imported timbers, when shipped 
by rail, take a rate one-half greater than that for 



143 

native woods, and this 50% increase serves to bar 
the shipment of considerable building material into 
the interior. It is said that the higher rate was orig- 
inally fixed because of the heavier weight per 100 
feet of the woods imported from Australia as com- 
pared with the native timber. Lumber rates in New 
Zealand are on the basis of measurement and not 
weight. No correction of the rate has ever been 
attempted so far as American woods are concerned, 
because the rate has worked to the advantage of the 
interior sawmills.'' 

Indeed, it may be said that Mr. Smith 's report confirms 
all that was stated by those representing the cargo mills 
at the Pacific Coast hearings. 

No one manufacturer can afford to send representa- 
tives abroad or to do what is necessary to exploit our lum- 
ber. The cost would be prohibitive, and if some mill did 
undertake it it would prove of no benefit under existing 
conditions. At the present time we know but little of 
competitive conditions in foreign markets, and the varia- 
tions in price of our own product tend to create preju- 
dice which is difficult to overcome. While the export 
lumber business has increased (with the exception of the 
years 1906 and 1907, due to the San Francisco and Val- 
paraiso disasters, and about one other year, from the 
middle of 1912 to July, 1913, due to purchases abroad 
previous to the abnormal advances in freight rates), the 
manufacturers have not been able to secure even fair 
cost for their lumber. Mr. Skinner stated in a letter, 
dated March 12, 1914 : 

'* Within a year the prices have declined $4.00 per 
M feet F. 0. B. value and about $6.00 in freight rates. 
We could, and should, have retained a fair portion 
of the reduction, which represents nearly the entire 
value of the F. 0. B. prices we are receiving now. 
Such violent fluctuations occurring so frequently 
create an unhealthy condition for the manufacturer 
and his employees, and is unwelcome to the pur- 
chaser, as it converts an ordinary wholesome busi- 
ness into one of wild speculation. The present ex- 



144 

port prices will not net the average export manufac- 
turer $1 per thousand above the actual cost of the 
labor for the production and manufacture of the 
timber into lumber." 

We may add, as we shall hereafter demonstrate, that 
since the date of this letter lumber has declined still fur- 
ther, and in many cases manufacturers are not getting 
back cost. 

As a remedy for these conditions, which are harmful 
not only to the manufacturers but to all concerned, it is 
proposed that foreign combinations, to handle export 
trade only, be permitted. It appears beyond question 
that with but few exceptions those actually doing the 
export business have no more interest in the manufac- 
turing end of the business or the investment than the 
brokers on the Chicago Board of Trade have in the farm, 
but the lumber brokers or exporters have gradually as- 
sumed control of the markets, making sales at prices 
fixed by themselves for six months and one year in ad- 
vance. The result has been the development of an un- 
natural and, so far as the manufacturers are concerned, 
an unprofitable method of doing business. The situation 
is such that the individual manufacturer can do nothing. 
He cannot properly exploit the foreign markets or de- 
velop the foreign trade. He is absolutely without in- 
centive to do so. This fact, coupled with the combina- 
tions in some foreign markets which he has to meet from 
time to time and which he is powerless to combat, leaves 
him as a manufacturer helpless unless he is simply to 
take the gambler's chance. This is not good for 
him, nor for this country. It is felt that w^hen we enter 
in competition for the trade of the world and must com- 
pete under the laws and customs of other nations, Amer- 
ican majiufacturers should be as little restricted as pos- 
sible. As stated, it is suggested that existing conditions 
be met by the formation of combinations dealing only 
with foreign trade. It is not proposed in any way to 
have to do with the domestic market or to prevent any 



145 

one's engaging in foreign trade, nor to exclnde any man- 
ufacturer from cooperating who may desire to do so. 

Monopolistic conditions in any true sense are not 
sought. Indeed, there is but little possibility of a mo- 
nopoly in this trade; and if the experience of the past 
furnishes any guide for the future there never will be 
any. There will always be some mill operators who will 
not join in such efforts. This is not intended as a re- 
flection on their judgment or methods, but simply states 
a fact. Nevertheless, even those who do not desire to 
participate have no objection to the plan. Even with 
such a combination the independent operator will con- 
tinue. Nor is it the desire of those who feel such com- 
bination to be necessary to prevent any one from par- 
ticipating, or, if he prefers, from operating indepen- 
dently. If the proposition is not sound economically it 
will not succeed ; if it is, it will. The broker will continue 
in business, but it is proposed that he run his business 
and do not run the manufacturer. Through the proper 
study and exploitation of foreign markets it is believed 
that the trade can be largely increased, to the material 
benefit of both the producer and the consumer. Not only 
will the trade itself expand, but those using our lumber 
abroad will have its uses explained, so that they will buy 
what they should, and we shall sell what we ought to. 
Foreign markets and their needs will be studied by direct 
representatives of the industry. It is intended to ascer- 
tain what the foreign buyer wants and then supply those 
wants. If warehouses or stocks of lumber are required 
abroad they will be supplied; and everything possible 
will be done to facilitate and increase the business. The 
opportunity exists to bring to the United States a large 
and profitable business. 

All this will cost money. It will cost so much that no 
individual could undertake it, nor could any individual 
otherwise meet the many demands of a successful for- 
eign trade. It is therefore proposed to do in combina- 
tion what cannot be done singly — exploit the markets of 



.146 

the world for the benefit of the lumber industry of the 
United States. There is nothing wrong, nothing im- 
moral, nothing unbusiness-like, nothing in restraint of 
trade in all of this. On the contrary, it is believed that 
the method proposed is sound and proper and its purpose 
directly in line with what all seem to desire, the devel- 
opment of our foreign trade. It is felt that by no other 
means can the export lumber trade of the Pacific Coast 
be lifted from its present intolerable condition, and be 
placed in a position where it can properly expand. There 
should be no satisfaction to any one in knowing that 
one of our great natural resources is being gradually 
exhausted without even the compensation of a living 
price or that a manufacturer is not receiving a fair and 
living profit, for in reality no one is permanently bene- 
fited by such a state of things. It is believed that a study 
of this question will convince the Commission not only 
that the lumber manufacturer's position is sound, but 
that it must be followed if the export lumber trade is to 
be what it should be. 

Nor are we altogether left simply to argument or con- 
jecture as to the benefits that will result from coopera- 
tion in the export lumber trade. Mr. M. B. Nelson (Chi- 
cago Rec, pp. 110 to 117) gave a very illuminating ac- 
count of recent efforts to exploit the foreign trade. Fail- 
ing through fear of coming into conflict with the Sherman 
Act to organize a large corporation to operate in the 
foreign trade, nine mills undertook to cooperate. We 
quote briefly from his statement; at page 111, he said: 

^*We therefore established an office in Hamburg 
and put in charge of that office a man who was 
familiar with our operations, and through some sal- 
aried salesmen and agents that he could keep in 
close touch with, we succeeded in developing a mar- 
ket for quite a number of items of stock that we had 
never been able to sell to that trade before. 

^^I might say that our reason for wanting to estab- 
lish this selling organization was that I found that 
the man who sold our lumber over there knew nothing 



147 

about a yellow pine tree, knew nothing about a saw- 
mill, or why we could manufacture one item cheaper 
than another or anything about it. Hence, it as a 
rule went through three or four hands before it came 
to us, and it was, I might say, really just a conglom- 
erate mass, and in order to get intelligence there we 
would waste too much energy through the different 
oJBfices and channels through which it passed. There- 
fore, as I say, we developed through our own opera- 
tions in a limited way sales for quite a lot of lumber 
that we would not have had if we had pursued the old 
methods; and what we accomplished in that line in 
the about two and a half years that we operated 
prior to the war, made it clear to me that much more 
could be accomplished if our selling energy was con- 
centrated through one channel, and we established 
competent, experienced men in the dilfferent markets 
where yellow pine could be consumed, and developed 
the business along practical lines. If we could secure 
in some way permission to organize so that we could 
send the proper organization throughout Europe, 
South America and the West Indies, in fact, every 
market where yellow pine is used, with that object in 
view, and the expending of all of our energies in the 
one direction, I think we could, in the course of ^ve 
years under normal conditions, double the sale of 
our product. 

^^My reason for that is this : I found, or we found, 
rather, that a number of markets. were buying lumber 
from the Baltic district — 

^^The Chairman: The Balkans! 

^^Mr. Nelson: The Baltic district, what is called 
the Baltic district, that is, in Norway, Sweden and 
Eussia. They had been accustomed to buying from 
that section, and take England, for instance, they 
are slow to change, much more so we found than Ger- 
many and Holland ; but if we had someone that could 
put the information before them in a convincing man- 
ner they could be induced to use our yellow pine and 
our American woods. 

^^Take box shooks: I think they could be intro- 
duced to a very large extent ; and a lot of shorts that 
are used for various purposes, for crating and boxing 
and for different uses, could be introduced also. 

'^Now, as to South American consumption, I am 



148 

not so familiar with conditions in that territory, but 
I am sure that the sale of it if intelligently handled 
would develop a demand that we do not now have, 

^'I do not know, gentlemen, that I have anything 
further to offer. ' ' 

Again at page 113 : 

^^Mr. Nelson: In the case of a smaller operator, 
or even confined to the production of our own mills, 
the expense of even maintaining a direct selling 
agency over in that country would be too great to 
warrant it unless the different mill operators would 
get together and sell through one organization, so 
as to give them a large amount of stock. 

* ^ Commissioner Eublee: Was it too great for 
your organization? That is to say, was the expense 
too great for your organization f 

^^Mr. Nelson: It would have been if confined to 
our o^YTL mills alone, but we bought considerable stock 
from neighboring mills. T^Hien we would take an 
order larger than we could handle ourselves, why, 
we would purchase what we could not furnish our- 
selves from outside mills, so in that way we consid- 
ered the proposition profitable. But I would not 
consider it so for small operations. 

' ' The Chairman : Did you find it satisfactory for 
your organization of nine mills 1 

^'Mr. Nelson: Confined to them alone we would 
not, no, sir; but* by buying some from the outside we 
were able to make it so. ' ' 

At page 114 : 

^^Mr. Keith: I would like to ask you also, Mr. 
Nelson, if the business of this country was normal, 
what percentage of the logs, yellow pine logs, could 
be economically manufactured for shipment abroad, 
in your judgTaent 1 

^^Mr. Nelson: If you use South America and the 
West Indies and all of the export markets that are 
open to us to be properly developed, I think the 
entire production could be utilized. The European 
market before the war took only the higher grades, 
while the loAver grades went mainly to the West 
Indies and South America. ' ' 



149 

At pages 114 and 115 : 

'^Mr. Nelson: I feel sure it could, because the 
methods of selling our material in that country at 
the present time are very crude. A lot of energy is 
wasted for which no one receives any benefit. It is 
the lack of intelligence upon the part of the people 
who are selling as to what they could get or what 
they can get. For instance, a buyer over there forms 
an idea that he wants a certain size or certain grade. 
Now, he does not know how difficult it is to secure 
that grade. The result is he makes an inquiry of 
some local dealer. That local dealer sends the in- 
quiry to the importer. The importer sends that 
inquiry, as a rule, to a general agent, say in London 
or some large place, and he in turn sends that over 
to what we call a local exporter over here. Then the 
local exporter goes to the mill with that inquiry to 
buy. Now, notice the number of officers and people 
that goes through. 

' ' The mill man might ask him about it, but he does 
not know what it is going to be used for, that is to 
say, the local exporter does not. The mill man might 
ask him, ^What is it going to be used for!' and he 
replies, ^I don't know,' and simply says, ^This is 
how it was put up to me,' and so it is up to the mill 
man to make a price on that item. There is no going 
to that buyer and making him a price on something 
else than what is inquired for. 

^ ^ The thought I have in mind is that if we had a 
man there who could go to this buyer or user of 
lumber and talk with him and ask him what it was 
going to be used for, and then explain to him what 
he could get, and the grade that he could get so much 
cheaper and that would also be cheaper for us to 
make and more profitable for us to manufacture, why, 
if we had an organization of that kind we could ac- 
complish a great deal, and, as I say, we could work 
up a trade for a lot of lumber which is now really 
going to waste in this country." 

Page 116: 

^^Commissioner Hurley: Who are your chief 
competitors now outside of Canada — Norway and 
Sweden ! 



150 



H 



Mr. Nelson: Norway, Sweden and Russia, 
There is some comes from the Balkan States, but 
their competition is not as great as from what is 
called the Baltic district. 

^^Commissioner Hurley: Then your thought is 
to offset this decrease in your business and provide 
for the substitutes that if you had a cooperative sell- 
ing organization for foreign trade it would help to 
increase your output and bring money into this coun- 
try? 

^^Mr. Nelson: Yes, sir; it would relieve our con- 
ditions to that extent. It would bring in just that 
much more money which we do not now have, and it 
would develop the market and the demand for some 
of our low grade stuff, really, which is going to the 
burner or being left in the woods at the present time. 

^^The Chairman: Was it contemplated that the 
chief function in that organization which you put up 
to your attorneys would be to formulate a selling 
agency or to ^ prices abroad to sell your product? 

^ ^ Mr. Nelson : Well, naturally to sell you have to 
^x the price, you and your customer have to ^ it, 
and as it is now, the customer fixes the price. ' ' 

Page 117 : 

^^The Chairman: The point I was directing my 
question to was this : It has been urged as an objec- 
tion to cooperation in the foreign trade that it would 
lead to the fixing of prices to the detriment of the 
consuming public in this country, which the law now 
prohibits, and which is generally considered im- 
proper. 

^'Mr. Nelson: No, I do not think it would affect 
it in the least. 

' ' The Chairman : You do not think it would neces- 
sarily follow? 

^^Mr. Nelson: No, sir.'' 

It will be observed that Mr. Nelson's experience, though 
limited, is directly in line with what Pacific Coast manu- 
facturers state is necessary for the development of the 
export trade in lumber. 

The statements made by Mr. E. A. Selfridge, Jr., and 
Mr. C. R. Johnson at the Hearing held in San Francisco 



151 

throw further light on this question. There certain red- 
wood operators, through a corporation called the '^Eed- 
wood Export Company, ' ' have cooperated to a limited de- 
gree. The result of this cooperation and its purpose is 
best told in the language of the witnesses. We quote 
from Mr. Self ridge (San Francisco Rec, pp. 10-13) : 

Page 10 (Export Business) : 

^'A brief consideration of the export business in 
redwood lumber is necessary in a survey of that in- 
dustry, for physical reasons have warranted and 
impelled a certain degree of cooperation which inci- 
dentally has greatly benefited that branch of the in- 
dustry. This constitutes a marked contrast to the 
government — compelled chaotic method of domestic 
distribution. At the present time this export busi- 
ness consists of redwood ties and rough clear red- 
wood lumber, Australasia, United Kingdom, India 
and the West Coast of South America constituting 
the principal importing countries. The physical rea- 
sons impelling this cooperation are as follows : 

(The character of the timber furnishing the prod- 
uct.) 

^>Not every, nor for that matter the whole of any 
log, is suited for the manufacture of these particular 
products. Specifications for ties allow a considerable 
number of knots and some sapwood. Obviously it 
would be uneconomical and a waste of a natural re- 
source to manufacture ties out of logs, or that portion 
thereof, which may be susceptible to use in the manu- 
facture of clear or other grades of lumber. In Hum- 
boldt County only 10% of the timber cut is adapted 
to the manufacture of ties; in Mendocino County 
about 121/0%. ^ In 1914 as much as 3,200,000 feet of 
ties were designated for shipment on a specified 
steamer and in January last another steamer took 
3,926,000 feet, which was part of an order for 22,- 
000,000 feet of ties ; each of the above shipments re- 
quired the united efforts of fifteen mills. 

^^This means, had one Humboldt County mill taken 
the order, that to get out this one shipment of 3,926,- 
000 feet, it would have had to cut 39,260,000 feet of 
lumber, and on the entire order 220,000,000 feet, 
which represents about half the total production of 



152 

all redwood lumber for 1914. On tlie other hand, the 
other export product, namely, rough clear redwood 
lumber, requires the best quality of material — no 
knots or other defects are permitted. Furthermore, 
the dimensions of this rough, clear redwood lumber, 
as generally furnished, are 40% three-inch thick- 
ness and over, eight inches and upwards in width, 
and a large quantity of widths fourteen inches and 
over. Of the content of the average log but a frac- 
tional portion is suited for this class of manufac- 
ture." 

(2) The Transportation. 

^' Until within the last decade redwood was trans- 
ported over-seas principally by small sailing vessels 
of about 500,000 feet capacity, which were loaded at 
the rate of about 40,000 feet per day. More recently, 
as everyone knows, the tramp steamer has super- 
seded the sailing vessel and only large tramp steam- 
ers can economically be used in the Australasian, 
Indian and United Kingdom trade. Instead of hav- 
ing comparative indulgence in loading days, the man- 
ufacturer has possibly sixty days' notice that a cer- 
tain vessel will take delivery on her arrival — and 
then must be prepared to deliver at say the rate of 
500,000 feet per day. It is not uncommon that a 
demurrage charge as high as from $400.00 to $700.00 
per day is provided for, according to the size of the 
steamer and the market value of her time, which 
charge has to be paid by the mills if the dispatch 
contracted for is not given. 

^'Furthermore, when such vessel arrives, say in 
Humboldt Bay, in order to bring about this dispatch 
the quota that each mill may have to cut to contrib- 
ute to the filling of such order must be manufactured 
and awaiting delivery on the wharf. If one mill at- 
tempted to alone execute such an order (which for 
the reasons stated in Paragraph 1 would be in other 
respects well nigh impossible), the consequences 
would be a degree of congestion utterly inconsistent 
with the simultaneous conduct of any other of its 
business. 

' ' The export shipping' point for Humboldt County 
redwood is Humboldt Bay. Mendocino County has 
several export shipping points. Cooperation between 



153 

the mills of the two counties has resulted in enabling 
exportation from the several shipping points at the 
times best suited therefor, having regard to seasonal 
conditions. 

''Prior to the period of cooperation, the little ex- 
port business that existed was accomplished through 
the uneconomical process of assembling individual 
shipments from each mill at San Francisco Bay for 
transshipment on the foreign carrier. 

''The result is that in comparatively recent years 
cooperation in the redwood export trade has been 
impelled by the physical necessities of the case and 
to meet the growing exigencies of the situation ; since 
1912, and at the present time it will be found that 
most of this export trade has been handled through 
a company known as Redwood Export Company, 
whose stockholders represent approximately half of 
the redwood operations. The cooperation thus forced 
upon the redwood industry has disclosed many fea- 
tures, purely collateral and incidental, making for 
the expansion of the trade and the prosperity of the 
localities in which the industry exists. 

"As consequences flowing from, rather than as 
causes or motives leading up to this limited coopera- 
tion, it is found that (a) there has been a relative 
stability of price, a matter of great moment to the 
purchasers of this product from the mills. The fluc- 
tuations in over-seas freight rates are embarrassing 
enough without adding thereto fluctuations in the 
price to be paid the manufacturer in the United 
States; (b) it is believed that a better price has 
been received by the manufacturer in the United 
States for certain grades of the exported product; 
(c) that the smaller redwood mills are enabled to 
participate in this export business; (d) that with 
greater stability of price in the importing country 
the retailer and wholesaler there are less fearful of 
carrying more liberal stocks, this resulting in benefit 
to the manufacturer in this country, owing to the in- 
creased demand that flows from the continuous abil- 
ity of the retailer and wholesaler in the importing 
country to meet the demand of the consumer, and, 
furthermore, creates a steady importing demand 
which can be more economically and profitably con- 
tracted for far in advance of the actual time of con- 



154 

sumption of the imported product. The securing of 
charters or space for the transport of this product is 
something that must be arranged many, many months 
ahead; (e) with one selling agency handling prac- 
tically all the export business, then, and not until 
then, does exploitation work become possible or pro- 
duce results. In this particular the redwood industry 
encounters all the difficulties which usually are met 
with in the introduction of any new material and 
many others that are peculiar to itself, but which 
time will not permit us to enumerate. In this con- 
nection it is worthy of note that since Redwood Ex- 
port Company was incorporated a very considerable 
tie business has been developed with India and the 
United Kingdom. The East Coast of South America 
is now engaging the attention of the company, but 
present transportation conditions prevent results. 

'^It should be added that the usual proportion of 
the annual cut of redwood which is exported amounts 
to about 121/2%. As to such cooperation as there 
has been in the redwood export business the oper- 
ators have been assured by their respective counsel 
that it plainly constitutes no violation of any statute 
of the United States — that this x^liysically impelled 
cooperation without which such export business is 
practically impossible, plainly is sanctioned by law. 
Nevertheless, if other export markets are to be 
reached and exploited and if all the benefits are to 
be reaped even in those fields where there is today 
limited cooperation, the industry in such efforts 
should have the express sanction of the law, for as 
has been well said, uncertainty as to what is pro- 
hibited by law amounts in effect to prohibition. 

''In conclusion, so far as the export business is 
concerned, it should be added that at the moment, no 
new orders are being booked and deliveries on orders 
taken prior to the European war are impossible, 
owing to shortage of bottoms. In this respect it 
stands on a par with the Douglas fir export business, 
with which no doubt your Honorable Body has be- 
come conversant while investigating that industry in 
Washington and Oregon." 

Mr. Johnson in discussing this subject said (San Fran- 
cisco Rec, pp. 20-25) : 



165 

'^Mr. Boyle: You handle solely redwoods in this 
export company! 

'^ Mr. Johnson : Yes, sir. 

''Mr. Boyle: How is redwood sold to the foreign 
consumer? Is it sold directly to him or does it pass 
through some intermediary channel! 

''Mr. Johnson: Almost always sold to what we 
call an exporting firm here." 

' ' Commissioner Hurley : A broker ! 

"Mr. Johnson: A broker. 

"Mr. Boyle: So that your price to him may not 
determine the price that he gets at all for the product 
abroad! 

"Mr. Johnson: No; it would be just one factor 
of it. 

"Mr. Boyle: What benefits have you found that 
this cooperative plan has given to the industry or to 
those mills that you represent! 

"Mr. Johnson: Well, the thing of the first im- 
portance has been the ability to fill orders by joint 
action, which Captain Self ridge explained very fully, 
especially calling your attention to a cargo of ties 
in which something over fifteen mills participated, 
and it was absolutely necessary to get the help of 
every one of those fifteen mills in order to fill that 
order. And that is so in the Australian shipments, 
very largely. It is perhaps less so this year, because 
we have gone back to a limited extent to the small 
sailing vessel, owing to. the absence of steamers, but 
shipments of redwood to Australia are usually made 
all the way from a million feet to four million feet on 
large tramp steamers where they have got to be 
loaded very quickly, where the penalty is severe for 
every day's demurrage they have, making it a very 
dangerous proposition for a single mill to undertake 
such a thing. 

"Mr. Boyle : What are the economies you experi- 
ence as a result of cooperation! 

' ' Mr. Johnson : Well, the economy is very largely 
that we can, by doing this joint work, regulate our 
cutting end ; we do not have to take, as we sometimes 
do when we are alone, an order and rush to get it 
out at tremendous disadvantage and then, perhaps, 
have a long period of famine. On that sort of order 
we can run more regularly on it. 



156 

*^Mr. Boyle: Does your corporation tend to a 
monopoly of the export business! Does it tend to 
crowd out the other independent mills I 

^^Mr. Johnson: I do not think so at all. No; I 
am satisfied it does not. The corporation, including 
these four mills, handles the lumber of any other 
redwood mill that so requests, on a commission of 
1%% (the same commission that is charged on lum- 
ber handled for the stockholders of the company). 
This has given a profit over expenses, and that profit 
has been, or will be, expended in the exploitation of 
these different markets that we are in or that we hope 
to get in. For instance, we have an agent in the 
Argentine Eepublic that we are paying by the year 
to try to introduce the wood. We do not expect un- 
der the present condition of shipping to be able to 
ship any lumber there perhaps for six months or a 
year, but we expect to keep him there and to work 
with that in view. ' ' 

' ' Mr. Boyle : Individual plants or individual com- 
panies could not finance such an undertaking of 
course. 

^'Mr. Johnson: Well, they would not do it; it 
would not pay them, because the business, when it 
came, would have to be scattered. " 

**Mr. Boyle: Has your company had the effect of 
crippling or lessening the opportunity of other inde- 
pendent plants to do business 1 

^^Mr. Johnson: I do not think so. I think we 
have helped it. I am satisfied that everyone would 
say that we have helped it. ' ' 

^^Mr. Boyle: Is there any sentiment in California 
among the redwood operators that has come to your 
attention whereby the complaint has been made that 
your company tends to do things that are not fair to 
the independent operator? 

^^ Mr. Johnson : I have never heard of such com- 
plaint. I do not think it would be possible." 

^^Mr. Boyle: Why do not more people cooperate 
then under a plan of this kind? 

*^Mr. Johnson: Well, for a number of reasons. 
One was it started that way with the four, which 
was probably all we could get into the matter at the 
time ; another thing has been the uncertainty regard- 
ing the law. Now we believe that we are absolutely 



157 

within the law and have been so advised, but some 
of the other people might have different ideas. An- 
other thing, it was thonght that if it become too large, 
if there were too many people, so that of themselves 
these factors made a monopoly of the redwood busi- 
ness, that then it might be against the law, whereas 
now it would not be, and it is not possible for those 
four to create a monopoly. 

*^ Commissioner Parry : What per cent of the red- 
wood industry is represented in this company? 

''Mr. Johnson : About 50% of the cut. 

' ' The Chairman : What is the capitalization of the 
four mills, approximately? 

''Mr. Johnson: The capitalization of the four 
mills I would say was 20 million dollars, principally 
in two of the big companies. 

"Commissioner Eublee: To what extent do you 
act as agent for the other mills? 

"Mr. Johnson: How many of the other mills do 
we act as agents for? 

"Commissioner Eublee: To what extent? You 
said that you acted for the other mills in selling in 
the export trade on commission. 

"Mr. Johnson: Yes, sir. 

"Commissioner Eublee: I wondered to what ex- 
tent you did that. 

"Mr. Johnson: Well, nearly all of them sell their 
lumber to us; some do not; some do sometimes and 
not at other times. 

"Commissioner Hurley: Did you handle that 15 
million order through this association? 

"Mr. Johnson: Yes, sir. 

"Commissioner Hurley: Did you get a better 
price from the foreigners by having this association 
than you would have received if they had gotten the 
bids from the different concerns and placed it out 
piece-meal ? 

"Mr. Johnson: I do not think it would have been 
practical for them to have placed it piece-meal, and 
I think the price would have averaged just as high 
piece-meal. We could not, at our mill, for instance, 
have undertaken to load the cargo. 

"Commissioner Hurley: Have you been getting 
a little better price under this arrangement than you 
received before ? 



158 

^^Mr. Johnson: Yes ; in my jndgment, we are get- 
ting a better price for the foreign Inmber than we 
would get for the same classes of Inmber sold in the 
local market. 

''The Chairman: So these smaller independent 
mills have the advantage of this agency for selling 
their Inmber abroad at half the cost that the brokers 
charge them for the same service if they desire to 
take advantage of it? 

''Mr. Johnson: If they desire to take advantage 
of it, yes, sir. 

"The Chairman: Is it generally understood the 
invitation is extended to them by yonr organization? 

' ' Mr. Johnson : Yes, sir. 

"The Chairman: Or do you pick ont a favored 
few? 

"Mr. Johnson: No; I think it is understood it is 
extended to everyone who wants to sell through us. 
Now we sell to these brokers, too, if you call the ex- 
port houses the brokers. They are not really brok- 
ers ; they are export houses, like the American Trad- 
ing Company and W. E. Grace & Co. 

' ' The Chairman : They are not what is commonly 
known as lumber broker! 

"Mr. Johnson : No, they are not what is commonly 
known as lumber broker. 

' ' The Chairman : They are merchants 1 

"Mr. Johnson: Yes. 

" Conmiissioner Hurley: Are you interested in 
the retail price of your product abroad, in seeing that 
the brokers and the middle men do not increase the 
price so it will restrict the purchase of your product 
over there? 

"Mr. Johnson: We are interested in it, but we 
have not as yet taken up that feature of it. We have 
talked about it. 

' ' The Chairman : How do you conduct your sales ? 
Do you negotiate direct with the buyer over there 
through your agent? 

"Mr. Johnson: No; most of the sales have been 
to such shipping houses or exporters, as we call them, 
the American Trading Company and people who are 
representatives of houses in Australia or South 
America. 

** Commissioner Hurley: If they sell this product 



159 

at an excessive price it restricts the sales, in a meas- 
ure, does it not? If they add two or three pounds 
to the thousand to your lumber over there, does it 
not limit the purchase of it, in a measure? 

^^ Mr. Johnson: Yes; it would if they asked too 
high a price compared with the competition of other 
woods. 

' ' Commissioner Hurley : Is not that an important 
matter for your association to find out? 

^ ^ Mr. Johnson : It is an important matter, yes, sir ; 
and my association intends to send somebody, and 
keep its own agent in Australia; not as a selling 
agent, but to keep informed of conditions there and 
also to guide us as to what price is the wise price 
to ask in that territory. There are woods that com- 
pete with redwood there very seriously, and we not 
only want to get a good price, but we do not want to 
get that price so high that it is unwise. 

'^The Chairman: Yes; I would like to ask what 
effect this cooperative agency has had in extending 
foreigTi sales. What is the volume now compared 
to the volume before you were organized? 

^'Mr. Johnson: About 53% greater in 1915 than 
it was before we were organized — that is, in 1914, 1 
mean. In 1915 it is small, on account of the shipping 
situation. 

' ' The Chairman : How long ago were you organ- 
ized, Mr. Johnson? 

'^Mr. Johnson: 1912. 

^'The Chairman: What volume in money would 
that represent? 

''Mr, Johnson: The shipments in 1911 to Aus- 
tralia were 34 million, if I remember right. 

''The Chairman: Dollars? 

"Mr. Johnson: Thirty-four million feet; that 
would be about a million dollars. 

"Commissioner Rublee: That was to Australia 
alone ? 

"Mr. Johnson: To Australia alone. Last year 
there were something over 50 million feet. 

"Commissioner Hurley: In arriving at these ex- 
port prices does your association in no way take up 
the domestic price question? 

' ' Mr. Johnson : Has absolutely nothing to do with 
any domestic shipments." 



160 

We have quoted at length from the statements of Mr. 
Self ridge and Mr. Johnson, as it is direct evidence not 
only of the necessity for cooperation in the foreign trade 
but also of what can be accomplished even when co- 
operation is limited to the most obvious needs. It would 
seem that the results secured justify all that the oper- 
ators say as to the necessity for combinations in foreign 
trade; and it would be difficult to point out any advan- 
tage to anyone that would ensue from compelling these 
redwood operators, even were it possible under existing 
trade conditions, to revert to the archaic and uneconomic 
methods of the past. 

Franklin H. Smith, from whose report we have hereto- 
fore quoted and who made a special study of this particu- 
lar question with relation to the Australian trade, at 
page 30 of his report says : 

Possibility of Increasing Trade with Australia. 

*^Can America's market for lumber in Australia 
be enlarged? This question cannot be answered in 
the affirmative without reservation. It is plain that 
under certain conditions trade between producer and 
distributer would be more satisfactory and probably 
more profitable to both parties. As is the case in 
other markets, the American millman by force of 
circumstances has been obliged to do business 
through a third party — a broker, shipper, indent mer- 
chant, or one falling under a similar classification. 
Analyzing the list of brokers doing a lumber business 
in Australia, only a few will be found who confine 
themselves to handling American timber. The point 
made and emphasized is the fact that these same 
concerns undertake to handle orders for Canadian, 
Baltic, and Japanese timber, or that produced in 
other countries — it matters not to them where the 
trade goes. They have no basic reason for sending 
orders to the United States, for the commission 
amounts to about the same wherever the orders are 
placed. 

^^With most of the brokerage houses the timber 
business is only a part of their interests, though not 
necessarily always the smallest, and, while the Aus- 



161 

tralian end of the business may be thorongbly un- 
derstood, there is generally a decided lack of knowl- 
edge of the producing end, such as the possibilities 
of manufacture, costs, grading and suitability or 
adaptability for a given purpose. The broker has 
not the training or, as a matter of record, the incen- 
tive to reach out for new avenues of trade (as con- 
crete examples, to displace Baltic flooring with Ore- 
gon pine, Baltic weatherboards with redwood, iron 
roofing with shingles, or Eussian and German veneer 
with American built-up panels) until forced to do so 
by pressure of circumstances, as when war cuts off 
the usual channel of supply. Again, if more commis- 
sion is to be earned by pushing a line of substitutes, 
such as patent wallboards, roofing, or the like, the 
broker would be working financial injury to himself 
if the lumber line were not neglected. 

Advantage of an Export Combination. 

^^An organization of lumber export mills on the 
Pacific Coast of the United States would unquestion- 
ably be of great advantage to both producer and con- 
sumer. With an efficient selling agency and by the 
apportionment of orders among the mills, a standard 
price could be maintained. The price could and 
should be fixed at a figure that would give a living 
profit to the mills and at the same time eliminate the 
shopping around of export orders and the constant 
bidding of one mill against another for the business 
offered. A fixed price, one not subject to fluctuation 
each week or month, would be welcomed by the Aus- 
tralian buyer, for he would then know that he could 
buy his lumber as cheaply as his neighbor and con- 
sequently compete with him on fairer grounds. This 
is a feature of organization that would particularly 
appeal to the buyer. With prices fluctuating all the 
time, the buyer does not know when to place his or- 
der. A variation of 50 cents or even $1.00 per M feet 
does not amount to much if only a carload or two of 
lumber is involved, but where 500,000 feet or per- 
haps 1,000,000 or more feet, comprising a cargo, are 
concerned, slight variations count decidedly. Low 
prices do not stimulate buying in the export busi- 
ness, since the buyer is inclined to hold off placing the 



162 

business in the belief that he can later make even a 
better contract. While an organization could hold 
prices steady, it could not advance them unreason- 
ably because of the competition with the product of 
other countries with Avhich competition is already 
keen. 

Organization Could Do Own Skipping. 

''An organization of offshore mills would be in as 
fair a position to undertake its own chartering at 
favorable rates as would the individual shipping con- 
cern. Better still, it could have its own fleet of lum- 
ber carriers, if necessary or desirable, and be able 
to ship as occasion demanded or even to load and 
ship subject to diversion, if required. The day of 
the sailing vessel in the Australian lumber trade was 
supposed to have been drawing to a close prior to the 
outbreak of the European war in 1914. Then, when 
steamer charters became impossible to make, the 
schooner, bark, and brig came into their own again. 
The Australian distributer is now inclined to believe 
that, after all, the sailing-vessel cargo is more satis- 
factory and economical than a steamer cargo of lum- 
ber, for the reasons that a smaller quantity at a time 
has to be turned over; that the financial obligations 
involved are less; that no ''swamping' under daily 
heavy discharges, with extra costs for repiling, takes 
place; and that the entire cargo is consigned to one 
or two parties. These advantages more than offset 
the one disadvantage associated with sailing cargoes 
— the uncertainty of tlie time in transit. 

Problem for MiUnien to Solve. 

"If the American lumber business in Australia is 
to be increased beyond the natural growth incident 
to the upbuilding of the country itself, it must be 
done by the lumbermen of the United States working 
in entire harmony for the connnon object. Certainly 
the interests are vast enough to warrant protection 
if not promotion — protection from encroachments by 
other competing nations. Organization is the one 
problem here faced, and greater problems have been 
solved by the lumbermen than that created by the 
necessity of forming an export selling concern to pro- 
tect, support and extend this trade. ' ' 



163 



(5) Foreign Competitive Conditions. 

An examination of the facts at the command of the 
Commission will sustain the statements made by the 
American manufacturers at this hearing. We are not 
dealing with a situation where the only source of supply 
is the United States. For instance, to the Australias 
there are large imports of lumber from the Scandinavian 
countries and the Baltic. While not so great in volume 
as those from this country, yet they are large, consisting 
principally of finished lumber, flooring, siding, etc. It is 
also said that, while as yet not exploited, the West Coast 
of South America has large areas of standing timber 
which need but transportation facilities to enable them 
not only to supply local needs but to enter into the export 
trade as well. British Columbia is now shipping in con- 
siderable quantities and is using every effiort to increase 
this trade. Indeed, it is difficult to come to any other 
conclusion than that in the immediate future the compe- 
tition between the British Columbia manufacturers and 
those of the United States will be very keen, and that it 
will be only through the most intelligent and efficient 
methods that our manufacturers will hold their own. 
There need be no doubt as to the attitude of the govern- 
ment of British Columbia and Canada. Their policy is 
openly proclaimed, crystallized into law, and acted on by 
those whose duty it is to administer the law and conduct 
the government. British Columbia assumes and acts 
upon the assumption that it is an active partner in the 
lumber industry of the Province. It is known (indeed 
there is no attempt to conceal the fact) that every effort 
is being put forth by representatives of the lumber manu- 
facturers of British Columbia and of Canada to secure 
preferential tariffs on lumber with the various British 
possessions. In South Africa there is now to some extent 
a preferential tariff on lumber, the next step being to 
secure one with Australia and New Zealand. It cannot 
be doubted that after the war is over the nations engaged 



164 

in it will in every way possible seek to regain the trade 
that has been diverted or lost. That the British Empire 
will use every influence at its command to this end cannot 
be doubted. With the various Dominions giving freely 
of their men and money, with the Empire united and 
welded together as it never has been before by the ter- 
rible trials it is undergoing, it is but natural that, when 
peace is restored, the various constituent parts of the 
Empire should combine and cooperate in every way for 
the advancement of their common interests. 

All that the manufacturers say with reference to the 
export trade being largely in the hands of intermediaries 
is fully confirmed from entirely independent sources. 
Every report will show that the picture is not overdrawn ; 
and some method must be devised whereby those who are 
directly interested in this lumber industry will have more 
to say in connection with the sale and distribution of the 
products they manufacture. So long as exporters take 
the orders and hold back the business, the effect desired 
— breaking prices — is sure to follow. No such conditions 
could exist in the domestic trade, and the opportunity 
for speculation in charters does not exist. So far as the 
manufacturers are concerned there is now no dependabil- 
ity or steadiness of price. This condition benefits neither 
the ultimate buyer nor the producer. It is good for no 
one but the speculator. Fair and stable prices and good 
service is as important in the lumber industry as in any 
other legitimate business. As an illustration, of how the 
situation is viewed by an unbiased investigator, we quote 
from a late report issued by the Department of Com- 
merce dealing with Japanese markets for American 
lumber : 

^ ^ One fact stands out clearly in connection with the 
Japanese business : Timbers are bought from the 
United States because no one of the competing coun- 
tries can furnish the quality or sizes demanded at the 
y)rice paid. Low prices for Douglas fir are no incen- 
tive for the buyers in Japan to place orders. Buying 



165 

is undertaken only when the material is actually 
needed. A better understanding among the pro- 
ducers and a close adherence to a standard list price 
will bring just as much business and more profit.'^ 
(Italics ours.) 

Neither does it meet the case to suggest that the manu- 
facturer does not have to sell. Theoretically he does not, 
but practically he does. Many of the plants are located 
not only on deep water, but also on the rail. Under pre- 
vailing conditions only a portion of the product is adapted 
for foreign trade. Eegular operation promotes economy, 
overhead expenses are always working, and the natural 
desire of any operator is to dispose of his product. In- 
deed, if he is operating he must do so. On the other hand, 
while there is a limited number of exporters, there is a 
large number of mills, and with the orders controlled by 
the former, the practical result is not only to force prices 
to the lowest possible level but also to prevent or at any 
rate to handicap the better utilization of the different 
grades. Nor are the manufacturers always protected 
even in the contracts made. As has been said, the ex- 
port business in lumber is quite as much a speculation in 
charters as it is furnishing lumber, and with variations 
in charters it is not at all uncommon for orders to be can- 
celled, leaving the manufacturer without any really prac- 
tical remedy. 

As Mr. Skinner stated, it is his belief, shared by others 
in the industry, that in some foreign markets, and more 
particularly in Australia and New Zealand, combinations 
exist among buyers covering both ends of the transaction 
— buying and selling. The Department of Commerce had 
a representative (Mr. Smith) abroad studying conditions 
in various foreign countries, including those referred to, 
His report bears out the information the manufacturers 
have from time to time received in the course of their 
business. While, as stated, there are those who doubt if 
even a combination such as w^e have suggested wiir prove 
the success its proponents claim for it, it is certain that 



166 

the individual operator today is so badly handicapped 

that any change would be for the better. 
At one of the hearings held by this Commission in 

New York City Mr. John D. Eyan is reported to have 

said : 

' ' This question of purchasing combinations applied 
with greater force to the lumber trade and with al- 
most equal force to every other kind of business. If 
foreigners are to be permitted to purchase lumber in 
this country at the rate and under the same terms as 
they have been doing, this country is going to rob it- 
self of an asset that can never be replaced. ' ' 

The laws of some of the countries dealing with monopo- 
lies, restraint of trade, etc., and their construction by the 
country concerned shed light upon the question under 
review. We are advised that by the terms of the Aus- 
tralian law agreements or understandings in restraint of 
trade are unlawful only when made : 

''(a) with intent to restrain trade or commerce 
to the detriment of the public; or, 

(b) with intent to destroy or injure by means of 
unfair competition any Australian industry the pres- 
ervation of which is advantageous to the common- 
wealth, having due regard to the interests of pro- 
ducers, workers and consumers. ' ' (Italics ours. ) 

We have not the statute before us, but the quotation 
is from a reliable authority. As compared with our laws, 
comment upon this language is unnecessary. The follow- 
ing quotations from the opinion of the Court in the case 
of Attorney General v. Adelaide Steamship Co., (1913) 
A. C. 781, and the comments thereon may prove of inter- 
est. In this case the Australian anti-trust act was under 
review. We quote: 

/'On the 25th of July, 1913, the Lords of the Judi- 
cial Committee of the Privy Council of England re- 
turned a decision relative to the Australian Indus- 
tries Preservation Act, 1906, and two amending Acts, 
No. 5 of 1908 and No. 29 of 1909. This was an ap- 
peal from an order from the High Court of Australia 
in its appellate jurisdiction reversing a decision of 



167 

Mr. Justice Isaacs, dated December 22, 1911. The 
case was that of the Attorney General of the Com- 
monwealth of Australia versus the Adelaide Steam- 
ship Company, Limited. 

' ' As stated by Lord Parker of Waddington in giv- 
ing reasons for the report 'the Act of 1906 (in Aus- 
tralia) was a new departure in legislation and its 
true construction may be a matter of far-reaching- 
economic importance. Their Lordships propose to 
consider its provisions with some particularity.' 

''The report then refers at some length to the law 
as it existed prior to and at the passing of the Act 
in relation to monopolies and contracts in restraint 
of trade. The report discusses the right of the in- 
dividual under common law. 

"It then discusses monopolies and their interfer- 
ence with the common right of freedom of trade. It 
then takes up for discussion of contracts in restraint 
of trade. 

The Case Involved. 

' ' The case involved was briefly as follows : Cer- 
tain collieries in New South Wales had 'vend agree- 
ments ' relative to prices and these agreements at the 
same time controlled wages. Here we quote from 
the report direct: 

' ' ' For the last 40 years wages in the Newcastle coal 
field have, by agreement between the colliery pro- 
prietors and the workmen, varied with the selling- 
price of coal. There is an assumed minimum price 
paid per ton for the best coal f. o. b. at Newcastle 
corresponding with an assumed minimum hewing 
rate. The probable price f. o. b. at Newcastle is 
declared for each year in advance by agreement be- 
tween the colliery proprietors and workmen, and for 
every Is. by which the declared price exceeds the 
minimum price the minimum hewing rate is increased 
by 4d. and the wages of certain other workmen by 
sums amounting to 2yod., so that out of every shil- 
ling advance in price ^i/od. in all goes to the work- 
men. It is not the practice to vary the declared 
price by fractions of I's. This method of deter- 
mining wages appears to their Lordships to be emi- 
nently reasonable and well calculated to prevent la- 
bor troubles,' 



168 



The New Agreement. 

^^In the early years of the present century a new 
nearby coal field was opened which as a result of 
the control of steamers and the determination to sell 
the output, resulted in a ruinous under-selling which 
in turn affected old and new collieres alike and the 
w^age-earners. Under these circumstances a meet- 
ing of colliery proprietors took place on the 5th day 
of January, 1906, and an association was formed to 
raise and maintain the price of coal. Lengthy ne- 
gotiations followed and a vend agreement was pre- 
pared and assented to in April, 1906. 

^^ Quotations from the report follow: 

'^ ^ Their Lordships, therefore, propose to consider 
whether an unlawful intention, i. e., an intention to 
restrain trade to the detriment of the public, can be 
gathered from these agreements considered sep- 
arately or as a part of the general scheme, it being 
admitted that each agreement constitutes a contract 
or combination in restraint of trade. 

'^ 'The unlawful intention alleged, is, so far as 
the vend agreement is concerned, in substance an 
intention to injure the public (1) by raising the 
price of coal, and (2) by annihilating competition 
in the Newcastle coal trade. There can be no doubt 
that the vend agreement was intended to preclude 
competition in the sense of under-selling among its 
members, and by this means to raise and maintain 
the price of coal won from the Newcastle and Mait- 
land coal fields. Ceteris paribus low prices are of 
advantage to the consuming public, and their Lord- 
ships will assume that in default of anything to in- 
dicate that the prevailing prices were too low to af- 
ford the colliery proprietors a reasonable profit, 
having regard to the capital embarked and the risk 
involved in their trade, a combination to raise prices 
would from the standpoint of public interest require 
some justification. It can never, in their Lordships' 
opinion, be of real benefit ^to the consumers of coal 
that colliery proprietors should carry on their busi- 
ness at a loss, or that any profit that they make 
should depend on the miners* waares being reduced 
to a minimum. Where these conditions prevail the 
less remunerative collieries will be closed down, there 



169 

will be great loss of capital, miners will be thrown 
out of employment, less coal will be produced, and 
prices will consequently rise until it becomes pos- 
sible to re-open the closed collieries or open other 
seams. 

*^ ^The consumers of coal will lose in the long run 
if the colliery proprietors do not make fair profits 
or the miners do not receive fair wages. There is 
in this respect a solidarity of interest between all 
members of the public. The Crown, therefore, can- 
not, in their Lordships ' opinion, rely on the mere in- 
tention to raise prices as proving an intention to in- 
jure the public. To prove an intention to injure the 
public by raising prices the intention to charge ex- 
cessive or unreasonable prices must be apparent. 
Not only can no trace be found in the vend agree- 
ment of an intention to raise the price of coal to an 
unreasonable extent, but such an intention is highly 
improbable, for it was not in the interest of the Vend 
to charge unreasonable prices. 

^* *In their Lordships' opinion the decision ap- 
pealed against was right, first, because so far as the 
Crown relied upon Section 4 (a) and Section 7 of 
the Act, there was no evidence (at any rate no sat- 
isfactory evidence) of any sinister intention on the 
part of either colliery proprietors or shipping com- 
panies; and, secondly, because so far as the Crown 
relied on Section 10 there was no evidence (at any 
rate no sufficient evidence) of injury to the public' " 

We also quote from another case cited by Mr. Ran- 
dolph in a pamphlet entitled *^ Opinion on the Anti-Trust 
Act and Export Trade with a note on the Eule of 
Reason": 

^^In Northwestern Salt Co. v. Electrolvtic Alkali 
Co. (30 Times Law Report, 313, Feb. 12,*^ 1914) the 
House of Lords gives the latest authoritative deliv- 
erance on restraint of trade at common law. 

'* Unquestionably the combination in question was 
one, the purpose of which was to regulate supply and 
keep up prices. But an ill-regulated supply and un- 
remunerative prices might in point of fact be dis- 
advantageous to the public. Such a state of things 
might, if it was not controlled, drive manufacturers 



170 

out of business, or lower wages, and so cause un- 
emplo^inent and labor disturbance. It must always 
be a question of circumstances whether a combina- 
tion of manufacturers in a particular trade was an 
evil from a public point of view. The same thing 
was true of a supposed monopoly. In the present 
case there was no attempt to establish a real monop- 
oly, for their might have been great competition 
from abroad or from other parts of these islands 
than the part which was the field of the agreement. ' ' 

The Canadian laws dealing with trusts and monopolies 
are very instructive in this connection. Space forbids 
any but the briefest extracts and summaries ; but the 
leading features can be very shortly indicated. 

A conspiracy in restraint of trade is thus defined in 
55,-56 Y., c. 29^, s. 516: 

^^A conspiracy in restraint of trade is an agree- 
ment between two or more persons to do or procure 
to be done any unlawful act in restraint of trade." 

By 63-61 Y., c. 46, s. 3, penalties are provided for con- 
spiring, combining, agreeing, or arranging: 

^^(a) To unduly limit the facilities for transport- 
ing, producing, manufacturing, suppl^dng, storing 
or dealing in any article or commodity which may 
be subject of trade or connnerce: or, 

^'(b) To restrain or injure trade or commerce in 
relation to any such article or commodity ; or, 

'' (c) To unduly prevent, limit, or lessen the man- 
ufacture or production of any such article or com- 
modity, or to unreasonahJy enhance the price there- 
of; or, 

*^(d) To unduly prevent or lessen competition in 
the production, manufacture, purchase, barter, sale, 
transportation, or supply of any such articles or 
commodity, or in the price of insurance upon per- 
son or property.'' 

But 

^ ' Nothing in this Section shall be construed to ap- 
ply^ to combinations of workmen or employees for 
their own reasonable protection as such workmen qy 
employees," 



171 

It will be noted that tlie acts provided against are not 
crimes unless they are in their nature undue or unreason- 
able. (The italics are ours.) Our Sherman Act makes 
no such distinction. In Canada an indictable conspiracy 
in restraint of trade must be one looking to the doing of 
an '^unlawful act in restraint of trade." The Sherman 
Act makes any ' ^ conspiracy in restraint of trade ' ' illegal. 
It is unnecessary to point out the difference from a prac- 
tical business standpoint between a law prohibiting undue 
or unreasonable action and a law which prohibits aU 
action except as modified by judicial interpretation. 
AVhen justices of the Supreme Court will divide five to 
four on the question of the application or non-application 
of a statute, what security has a business man! What 
can he do but scrupulously avoid every act that mighf 
possibly be construed as coming under the literal ban o^ 
the law? . 

Another illustration of the Canadian attitude on this 
matter is furnished by the law empowering the governor 
to place on the free list articles in which any undue or 
unreasonable combination exists, to the disadvantage of 
the consumers. The significant sections of this statute 
read as follows : 

''Whenever the Governor in Council has reason 
to believe that with regard to any article of com- 
merce there exists any trust, combination, associa- 
tion, or agreement of any kind among manufacturers 
of the article or dealers therein to unduly enhance 
the price of the article, or in any other way to unduly 
promote the advantage of the manufacturers or deal- 
ers at the expense of the consumers, the Governor 
in Council may commission or empower any judge 
of the Supreme Court of Canada or of the Exchequer 
Court of Canada, or of any Superior Court in any 
Province of Canada, to inquire in a summary way 
into and report to the Governor in Council whether 
such trust, combination, association, or agreement 
exists." 

^'If the Judge reports that such trust, combina- 



172 

tion, association, or agreement exists, and if it ap- 
pears to the Governor in Council that the disadvan- 
tage to the consumers is facilitated by the duties of 
customs imposed on a like article when imported, 
then the Governor in Council shall place the article 
on the free list, or so reduce the duty on it as to give 
to the public the benefit of reasonable competition 
in such articles/' 

(60-61 v., c. 16, s. 18. Italics ours.) 

The criterion established by such wording is too plain 
to need comment. The sole test is whether or not the 
public is benefited — not whether trade as such is re- 
strained or competition per se lessened. 

The latest legislation in Canada is embodied in the 
"Combines Investigation Act'' (9-10 Ed. VII, c. 9), as- 
sented to May 4, 1910. It provides somewhat elaborate 
machinery for investigation of combines, by means of 
boards of inquiry. These boards are to report to the 
Governor in council (and such reports must be^ pub- 
lished), who can place articles on the free list or revoke 
patents; and persons reported guilty of infringing the 
Act become ipso facto indictable and liable to penalty. 
We append certain "extracts which indicate the purpose of 
the law. 

^^^ Combine' means any contract, agreement, ar- 
rangement, or combination which has, or is designed 
to have, the effect of increasing or fixing the price 
or rental or any article of trade or commerce or the 
cost of the storage or transportation thereof, or of 
the restricting competition in or of controlling the 
production, manufacture, transportation, storage, 
sale, or supply thereof, to the detriment of consum- 
ers or producers of such articles of trade or com- 
merce, and includes the acquisition, leasing, or oth- 
erwise taking over, or obtaining by any person to 
the aforesaid, of any control over or interest in the 
business or any portion of the business of any other 
person, and also includes what is known as a trust, 
monopoly, or merger. ' ' 

^* Where six or more persons, British subjects resi- 



173 

dent in Canada and of full age, are of opinion that 
a combine exists, and that prices have been enhanced 
or competition restricted by reason of such combine, 
to the detriment of consumers or producers, such per- 
sons may make an application to a judge for an or- 
der directing an investigation into such alleged com- 
bine. ' ' 

' ' The application shall be accompanied by a state- 
ment setting forth: 

^'(a) The nature of the alleged combine and the 
persons believed to be concerned therein. 

^ ' (b) The manner in which the alleged combine af- 
fects prices or restricts competition, and the extent 
to which the alleged combine is believed to operate 

to the detriment of consumers or producers." 

******** 

^^The application shall also be accompanied by a 
statutory declaration from each applicant declaring 
that the alleged combine operates to the detriment 
of the declarant as a consumer or producer, and that 
to the best of his knowledge and belief the combine 
alleged in the statement exists and that such com- 
bine is injurious to trade or has operated to the det- 
riment of consumers or producers in the manner and 
to the extent described, and that it is in the public 
interest that an investigation should be had into such 
combine.'' 

'^li upon such hearing the Judge is satisfied that 
there is reasonable ground for believing that a com- 
bine exists which is injurious to trade or which has 
operated to the detriment of consumers or producers^ 
and that it is in the public interest that an investiga- 
tion should be held, the Judge shall direct an inves- 
tigation under the provisions of this Act.'' 

** * * * * * * 

''The Board shall expeditiously, fully, and care- 
fully inquire into the matter referred to it and all 
matters affecting the merits thereof, including the 
question of whether or not the price or rental of any 
article concerned has been unreasonably enhanced, or 
competition in the supply thereof unduly restricted, 
in consequence of a combine." 



174 

'* Whenever, from or as a result of an investiga- 
tion under the provisions of this Act, or from or as 
a result of a judgment of the Supreme Court or 
Exchequer Court of Canada or of any Superior 
Court, or Circuit, District, or County Court in Can- 
ada, it appears to the satisfaction of the Governor 
in Council that with regard to any article there ex- 
ists any combine to promote unduly the advantage 
of the manufacturers or dealers at the expense of 
the consumers, and if it appears to the Governor in 
Council that such disadvantage to the consumer is 
facilitated by the duties of customs imposed on the 
article, or on any like article, the Governor in Coun- 
cil may direct either that such articles be admitted 
into Canada free of duty or that the duty thereon be 
reduced to such amount or rate as will, in the opin- 
ion of the Governor in Council, give the piihlic the 

benefit of reasonable competition.' ' (Italics ours.) 

******** 

Provisions are made for revoking patents used 
"so as undidy to limit the facilities for transport- 
' ing, producing, etc.,'' 
or so as 

"unduly to prevent, limit, or lessen the manufacture 
or production of any article or unreasonably to en- 
hance the price thereof, or undidy to prevent or les- 
sen competition in the production, manufacture, pur- 
chase. ' ' 

******** 

Finally, it is enacted that: 

"Any person reported by a Board to have been 
guilty of undidy limiting the facilities for transport- 
ing, producing, manufacturing, supplying, storing, 
or dealing in any article which may be a subject of 
trade or commerce; or of restraining or injuring 
trade or commerce in relation to any such article; 
or of undidy preventing, limiting, or lessening the 
manufacture of production of any such article; or 
of unreasonably enhancing the price thereof; or of 
unduly preventing or lessening competition in the 
production, manufacture, purchase, barter, sale, 
transportation, storage, or supply of any such ar- 
ticle," (Italics ours.) 

shall be indictable and liable as above indicated. 



175 

We have given these excerpts at some length in order 
that it may be very plain what is the attitude of our vig- 
orous neighbor across the line, and in order that there 
may be no mistaking the nature of the competition which 
American business must meet from other countries. 

It is worthy of note in this connection that the anti- 
dumping law and regnilations are made a part of the cus- 
toms tariff. Space forbids the extension of an abstract 
of the law ; but it suffices to say that by means of it Can- 
ada protects her manufacturers as well as her consumers, 
in the colloquial phrase, '^both going and coming." 

(6) Combinations hy American Exporters, 
(a) Scope of Inquiry. 
In speaking before the Third Annual Meeting of the 
Chamber of Commerce of the United States on February 
3, 1915, President Wilson said : 

''I want to know how cooperative methods can be 
conducted for the benefit of everybody who wants to 
use them, and I say frankly that if I can be shown 
that, I am for them. If I cannot be shown that, I am 
against them. I hasten to add that I hopefully ex- 
pect that I can be shown that. '^ , 

The Provision (Sec. 25) of the Federal Reserve Act 
that a national bank with a million dollar capital and 
surplus may establish ''branches in foreign countries and 
dependencies of the United States for the furtherance of 
the foreign commerce of the United States'' is not with- 
out significance in this connection. 

Among those who have studied the question there is but 
one opinion as to the desirability of the expansion of for- 
eign trade. The subject was discussed in the ''Revue de 
Deux Mondes'^ for October 1, 1915, by M. Adrien Artand. 
While his article is more directly addressed to conditions 
in France, some of his statements are so apposite that we 
feel them to be well worth quoting. He said : 

"The importance of domestic commerce depends 
upon our activity and the number of our population ; 



176 

it is not the same with our foreign commerce, which 
is more or less dependent upon the facilities which 
we afford to trade and whose increase or decrease 
progresses in geometrical rather than in arithmetical 
ratio. With a prosperous foreign trade, a country 
shares in the development of all countries and has 
a continually increasing merchant marine. With a 
decreasing foreign trade, a country little by little 
grows weaker, and becomes after a certain time the 
prey of enterprising neighbors'' (p. 590 — italics 

onrs.) 

******** 

^^We do not understand how statesmen can be in- 
different to the progress or decadence of our mer- 
chant marine, and how they can desire to maintain 
it or to make it move ahead without assuring it 
cargoes by the activity of exchanges of goods with 
foreign countries'' (p. 608). 

The salient points fairly open to discussion seem to 
be three: 

First. Are combinations between American manufac- 
turers solely for the promotion of foreign trade legal? 

Second. Are such combinations desirable or necessary 
in the promotion of foreign trade ? 

Third. Is such combination necessary for the develop- 
ment of the export lumber business ? 

(b) The Legality of Combinations. 
Confined Solely to Export Business. 

On this question, as in the case of most others where 
there is ample room for construction, opinion is divided, 
and will remain so until either the court of last resort 
specifically passes on it or Congress takes affirmative 
action. It is not our belief that such combinations are 
prohibited by law, nor that Congress had in mind, when 
the Sherman Act was passed, the protecting of trade in 
foreign countries. We thus state our opinion as a general 
proposition; but it is limited in this respect; such com- 
binations must be confined solely to foreign business, and 



177 

must not tend to restrain, limit, monopolize, or affect do- 
mestic commerce. We have perhaps formulated our opin- 
ion in a rather dogmatic manner, but we are not alone in 
our view. Although the question has never been directly 
passed upon by the courts, many lawyers have been called 
upon to express opinions ; and, in spite of the fact that, 
as a rule, any lawyer will in case of doubt protect himself 
and warn his client, a number of opinions have been ren- 
dered by eminent counsel to the effect that §uch combina- 
tions, within the limitations stated, are not illegal. It is 
but fair to say that probably just as many eminent law- 
yers have given opinions to the contrary — and such is the 
state of the law. 

The fundamental thought underlying the Sherman Act 
was the protection of our citizens and their commerce 
against monopolies and unlawful restraints in trade. It 
can hardly be assumed that in legislating to this end Con- 
gress had in mind the protection of foreigners. It was 
known that combinations did (and do) exist in foreign 
countries and are, many of them, not only favored but 
encouraged by affirmative governmental action; and (as 
has been said by Mr. Hunter M. Moss) it is somewhat 
difficult to believe that ''Congress with this situation star- 
ing it in the face deliberately enacted laws to deprive the 
American business man of the equal opportunities to 
which he is entitled in this great commercial struggle." 

Although not directly in point, the case of American 
Banana Co. v. United Fruit Co., 213 U. S. 348, is often 
referred to in the discussion of this question as tending 
to show that the provisions of the Sherman Act do not 
apply to foreign commerce. The claim of the complain- 
ant was that the defendant was a combination in restraint 
of trade in America, and that, in order to injure the com- 
plainant 's business of raising and shipping bananas into 
this country, it had instigated the government of Costa 
Rica to injure or destroy the plantation of the complain- 
ant. The Supreme Court of the United States held that 
the complainant could not recover on two grounds : First, 



178 

that tlie acts performed were beyond the jurisdiction of 
the United States and in a foreign country; and second, 
that they were performed by a foreign government. 
Mr. Justice Holmes said : 

^'It is obvious that, however stated, the plaintiff's 
case depends on several rather startling propositions. 
In the first place the acts causing the damage were 
done, so far as it appears, outside the jurisdiction 
of the United States and within that of other states. 
It is surprising to hear it argued that they were gov- 
erned by the Act of Congress. =* * * 

''The foregoing considerations would lead in case 
of doubt to a construction of any statute as in- 
tended to be confined in its operation and effect 
to the territorial limits over which the law-maker 
has general and legitimate power. 'All legislation 
is prima facie territorial.' Ex parte Blain, in re 
La^A^ers, 12 Ch. Div. 522, 528 ; State v. Carter, 27 
N. J. (3 Dutcher) 499; People v. Merrill, 2 Parker, 
Crim. Eep. 590, 596. Words having universal scope, 
such as "Every contract in restraint of trade;'' 
"Every person who shall monopolize," etc., will be 
taken as a matter of course to mean only every one 
subject to such legislation, not all that the legislator 
subsequently may be able to catch. In the case of 
the present statute the improbability of the United 
States attempting to make acts done in Panama or 
Costa Eica criminal is obvious, yet the law begins 
by making criminal the acts for which it gives a right 
to sue. We think it entirely plain that what the de- 
fendant did in Panama or Costa Eica is not within 
the scope of the statute so far as the present suit is 
concerned. Other objections of a serious nature are 
urged but need not be discussed. ' ' 

It was claimed, moreover, that to persuade and induce 
the Costa Eican government to perform these tortious 
acts was in violation of the rights of the complainant. 
The Court held to the contrary for the following reason : 

"The fundamental reason is that it is a contra- 
diction in terms to say that within its jurisdiction 
it is unlawful to persuade a sovereign power to bring 
about a result that it declares bv its conduct to be 



179 

desirable and proper. It does not, and foreign courts 
cannot, admit that the influences were improper or 
the results bad. It makes the persuasion lawful by 
its own act.'' 

Again the Court said: 

^'A conspiracy in this country to do acts in an- 
other jurisdiction does not draw to itself those acts 
and make them lawful, if they are permitted by the 
local law. ' ' 

A very eminent lawyer and one specially versed on this 
branch of the law, Mr. Frank B. Kellogg, says : 

^^It is altogether too remote to say that one con- 
cern agreeing to sell goods in Germany at a certain 
price in any way tends to restrict competition in 
this country. The possibility of its affecting com- 
merce in America is so remote as not to be a direct 
and substantial restraint within the meaning of the 
decisions. Now it can make no difference that the 
foreign government does not formally approve such 
a transaction, if it does not disapprove it and if it 
is valid according to the laws of that country. It 
certainly cannot be held in violation of the public 
policy of this country, for an American corporation 
engaged in a contest for the commerce of the world 
to enter into agreements which are approved by the 
public policy of the nations where we are compet- 
ing. When we go forth to compete for the commerce 
of nations, we must compete under the rules, regu- 
lations and laws of those countries, as well as the 
customs. It might be a good thing for humanity gen- 
erally to extend the principles of the Sherman Act 
all over the world, but they have not been extended ; 
and are we going to hamper American corporations 
when engaged in foreign commerce by requiring obe- 
dience in those countries to our laws when foreign 
corporations are free from such restrictions? If 
such is to be the policy of this country, we will soon 
have no foreign commerce, and we cannot believe 
that the courts will so interpret the Sherman Act." 

A very well reasoned opinion on this question by Mr. 
Carman F. Randolph of New York was published about 
two years ago. Doubtless the members of the Commis- 



180 

sion have read it. We submit the following excerpts 
from this opinion : 

^^ Whatever may be advisable by way of public en- 
couragement of export trade, and I believe there is 
much, it should be unthinkable that our laws are 
even open to the suspicion of forbidding any expe- 
dient method of promoting it. 

''Yet business men entertain sufficient doubt of the 
validity of export associations under the Anti-trust 
Act to prevent the employment of this, in some cases, 
advantageous method of marketing commodities 
abroad to their own and their country's profit. This 
method has, for years, been a strong weapon in the 
hands of our rivals. It should now be recognized 
here because, having turned away from the policy 
of high protection, we must remove all barriers to 
our competition in the world's markets. Let the 
openings in the tariff wall be for exit as well as for 
entrance." * * * 

''To the possible objection that our anti-trust pol- 
icy suggests a moral duty abroad as well as at home 
the answer that each nation must look out for itself 
expresses sound law and no cynical indifference. 
Economics are not dissociated from morals, but the 
relation of economic morality to monopoly, competi- 
tion, free trade, protection, export bounties, ship sub- 
sidies, etc., is for each nation to determine and the 
collective determination disclose sharp contrasts. 

"I have put the international question simply to 
dispose of it. Had all reference to foreign commerce 
been omitted from the Anti-trust Act or had con- 
tracts or combinations in restraint of import trade 
been singled out there would have been no breach 
of duty toward other nations. So there will be none 
if, now, we recognize export combinations. 

' ' In fine our legal problems extend no further than 
the jurisdiction of the Anti-trust Act — the territorv 
of the United States.'' * * * 

"The sole purpose of an export association is to 
sell, mediately or immediately, domestic commodi- 
ties in foreign markets. The main purpose of the 
Anti-trust Act is to protect consumers from monop- 
oly prices. What consumers? Do these include per- 
sons in foreign countries? * * * 



181 

'^But tlie proMbitions of the Act cannot reach out 
to the production, assembling and transportation in 
foreign territory of articles sent hither, though these 
processes be monopolistic. For it is the universal, 
the self-evident rule that the laws of one nation can- 
not regulate the policy of another. 

^'In the matter of our exports this rule naturally 
works in reverse order — the prohibitions of the Act 
do not affect the handling of our commodities in the 
foreign market. 

'^ Since the consummation of an export associa- 
tion's purpose — sale in a foreign market — is beyond 
the reach of our statute, it would be absurd to argue 
that the mere inception of the purpose in this coun- 
try initiates a conspiracy in restraint of trade. 

^^I conclude that the purpose of an export asso- 
ciation is from beginning to end beyond the pur- 
view of the Act. " * * * 

''Export associations may, in my opinion, be ar- 
ranged and operated so as to withstand attack in 
the courts. It remains to be seen whether business 
men will be inclined to take even the chance of at- 
tack. If not, Congress should remove the shadow 
of doubt by permissive legislation. Either a pro- 
viso to the Anti-trust Act or a clause in a general 
'Act to promote export trade,' comprising whatever 
provisions the Government and men of affairs may 
deem useful and expedient." 

There are some significant statements in the opinion 
of the Court in the case of United States v. United States 
Steel Corporation et al., 223 Fed. Rep. 55. We quote 
from page 103 : 

"It will be observed that in thus reducing the price 
of basic steel materials to enable manufacturers to 
enter the foreign markets, the Steel Corporation has 
pursued the same helpful course of lower freights 
for exports which the Interstate Commerce Commis- 
sion has, since 1903, approved of the railroads do- 
ing. In that regard the proofs show (Yol. II, pp. 
4474_4475) : 

" 'If a shipment is made from Pittsburgh to New 
York under a bill of lading beginning and ending 
with Pittsburgh and New York, that where it is 



182 

known that it is going to be exported the rate is less 
than when it is kno^vn it is going to stop in New 
York; the tariffs are published.' * * * ^ There 
is an export rate and a domestic rate, and the Gov- 
ernment has encouraged the export business to the 
extent of permitting the Interstate Commerce Com- 
mission to make export rates. The export rates have 
been in effect since 1903.' 

•^And we may add the proofs (Vol. 10, p. 3933) 
show that the Interstate Commerce Commission has 
gone to the extent of differentiating among differ- 
ent articles for export, making freights on export 
rails lower than on other export articles. We may 
here say that the Interstate Commerce Commission 
and the railroads in thus cooperating with the Steel 
Corporation, and these other manufacturers in al- 
lowing lower freights from interior points to the sea- 
board on goods intended for export, has followed the 
policy adopted in European countries. In that re- 
gard the proofs (Vol. 28, p. 12037) show: 

' ' ^ The German Government and the German rail- 
roads help for the export of finished products, but 
they charge the full domestic rate for any finished 
product that is imported.' 

'^Passing on, then, from this $30,000,000 of the 
foreign trade which the Steel Company has created 
for itself by inducing domestic consumers of its basic 
products to jointly enter into a foreign trade, and 
considering the other foreign trade, $60,000,000, 
which is its own, we examine the evidence as to 
whether the creation ^nd building up of this, its own 
foreign trade, involves monopoly or restraint of 
trade. This becomes all-important, because the Steel 
Corporation contends that the creation and build- 
ing up of a foreign steel and iron trade was one of 
the controlling reasons that led to its formation, and 
not a purpose to restrain or monopolize interstate 
home trade. In that regard the contention of the 
Steel Corporation is that no such foreign steel and 
iron trade could be built up without the large re- 
sources of the Steel Company (Vol. 10, pp. 3790, 
3791), and the varied products which the integra- 
tion and combination of its units alone made pos- 
sible. The mere statement of this contention shows 
its importance, for if the twofold purpose of this 



183 

statute is to foster and protect trade, both foreign 
and interstate, and if foreign trade cannot be in- 
creased witliont some such mechanically varied and 
financially strong agency as this Steel Corporation, 
then manifestly such agency is not a violation of a 
statute whose purpose was to permit— not to prevent 
— the normal, natural and to be desired development 
of unrestrained, unmonopolized trade, both foreign 
and domestic. ' ' 

And again, page 114: 

''With these facts, figures, and results proved in 
this record, we are warranted in holding that the 
foreign trade of the Steel Corporation, its mode of 
building it up, and its retention when built up are 
not contrary to the Sherman Law. To hold other- 
wise ivould he, practically and commercially, to en- 
join the steel trade of the United States from using 
the business methods which are necessary in order 
to huild up and maintain a dependable business 
abroad, and if the Sherman Laiv ivere so construed, 
it ivould itself he a restraint of trade and unduly 
prejudice the public hy restraining foreign trade." 
Happily, it is open to no such charge, for, as the Su- 
preme Court in the Standard Oil Case said : 

' ' ' One of the fundamental purposes of the statute 
is to protect, not to destroy, rights of property.' " 
(Italics ours.) 

We are not prepared to say that the question is settled, 
but it does seem that, although the Commission is not a 
court, it has the opportunity in this instance to aid and 
encourage export trade by indicating, first, whether in its 
judgment cooperation and combination is either desirable 
or necessary in the export trade, and, second, the extent 
to which such cooperation may be safely carried. It 
would seem that this is a case where the words of the 
President, in his message of January 20, 1914, might well 
be applied. They are as follows : 

*' And the business men of the country desire some- 
thing more than that the menace of legal process in 
these matters be made explicit and intelligible. They 



184 

desire the advice, the definite guidance and informa- 
tion which can be supplied by an administrative body, 
as Interstate Trade Commission. ' ' 



(c) Are Such Combinations Desirable or Necessary in 
the Promotion of Foreign Trade? 

In the study of an economic question the seeker after 
truth will when possible test a theory in the light of ex- 
perience. He will ascertain the facts, will examine with 
care the opinions of experts, both students and men of 
experience, and will above all look to results where any 
particular practice has been carried on. Unless both the- 
ory and experience are to be rejected, the application of 
any test to the question here submitted shows that com- 
binations are not only desirable but necessary if Amer- 
ican producers are to compete in foreign markets ; other- 
wise, the export trade will be confined substantially to 
raw material or to the products of concerns which are of 
sufficient magnitude as to have within themselves the cap- 
ital as well as the variety of products necessary to enable 
them to compete in the world's market. 

Foreign trade has ever been the recipient of careful 
solicitation and care at the hands of enlightened govern- 
ments, and many of the great nations of the world are 
active in every conceivable way in promoting this trade. 
This is not to say that the American manufacturer is 
justified in ' ^ lying to ' ' and casting the entire burden upon 
his government ; but when he attempts to enter a foreign 
market he finds himself confronted with a character of 
competition which is impossible for him to overcome, as 
it is more often than not backed up by some governmental 
agency. Turning as one naturally would to see what 
might be done through cooperative effort, he again finds 
himself confronted by laws which, if not intended to pre- 
vent and handicap foreign trade, certainly have that effect 
as far as he is concerned, unless he is willing to take 
chances such as few business men care to. The indi- 
vidual manufacturer, met at every turn by such condi- 



185 

tions, throws up his hands in despair ; and thus the very 
purpose of these laws, which were to protect him against 
unfair competition or competition of a character he can- 
not overcome unaided, is defeated, and the result is ex- 
actly the opposite of what was intended. 

The consequence is that, while our foreign trade runs 
into high figures, the larger part of it consists of what 
might be termed raw materials. This is not to say that 
our progressive merchants and manufacturers are not 
making headway even in the face of serious obstacles, for 
they are. That our foreign trade is not what it should be 
is shown most conclusively by the intelligent and con- 
sistent efforts the Department of Commerce is making to 
encourage and expand it. The individual concerns, how- 
ever, which have made real progress in seeking and hold- 
ing trade are those which have within themselves the 
capacity from every standpoint, financial and otherwise, 
of meeting the competition they find. We refer to such 
organizations as the United States Steel Corporation, the 
International Harvester Company, the Standard Oil 
Company, and those representing the copper interests, 
or to companies or individuals owning patented articles 
in demand or producing extensive lines of certain goods 
or something not generally found elsewhere. 

Turning to the expressions of opinion from both stu- 
dents and men of experience, we quote some excerpts 
from a paper entitled '^Cooperation in Export Trade,'' 
written by William S. Kies, of the National City Bank of 
New York, and published in ' ' The Annals of the American 
Academy," as follows: 

''The best example of national achievement re- 
sulting from intelligent coordination of efforts is 
that of Germany. Twenty-five years ago Germany 
set for herself the task of building up her foreign 
trade. Her economists saw clearly that national 
wealth and prosperity were the sure rewards of a 
successful foreign commerce; that selling to other 
nations, in return for their raw materials, the prod- 
ucts of factory and workshop, meant a permanent in- 



186 

come to Germany from the labor and skill of her 
citizens, and that the value added by the processes 
of manufacture gave to her either a call upon the 
gold supply of the world or the option of a credit 
which could be used in the purchase of foodstuffs or 
other raw materials. Germany went about the mat- 
ter in a thoroughly scientific manner. " * * * 

'^Cooperative societies were organized for the ad- 
vancement of export trade. Chambers of commerce, 
which were active bodies and not paper organiza- 
tions, collected data and information for the benefit 
of all interested. 

''The Government, keenly alive to the fact that 
commercial supremacy means national power and 
greatness, shaped its export policies along broad and 
constructive lines. " * * * 

"If, in order to meet the competition of other na- 
tions in foreign markets, it was necessary to sell be- 
low the price prevailing in the domestic market, a 
public opinion was created which applauded such a 
course as entirely patriotic, in that the greater the 
sale of German products abroad the nearer would 
German manufacturing establishments approach ca-. 
pacity production, and capacity production was early 
realized by German efficiency experts as the best 
means of reducing economic waste in production and 
lowering the unit cost of the products." * * * 

"It is plain, from the experience of Germany and 
England, that material progress in the development 
of foreign commerce depends upon cooperative ef- 
fort, not only between manufacturers, but between 
the Government and those interested in foreign 
trade. Within the limits of the trust laws, the Gov- 
ernment has shown a most laudable cooperative 
spirit. The Department of Commerce is doing splen- 
did work, and the present chief of the Bureau of 
Foreign and Domestic Commerce has built up an or- 
ganization of experts who are giving real service to 
our manufacturers. The Treasury Department has 
applied itself to the study of the financial needs of 
the South American countries, with the desire of 
being helpful, and is working along constructive 
lines. 

"There does not, however, seem to be that spirit 
of cooperation among manufacturers themselves 



187 

whicli is necessary to the accomplishment of perma- 
nent results. This, to a large degree, no donbt, is 
due to the feeling of uncertainty existing in the minds 
of manufacturers as to the extent of the applica- 
tion of the Sherman Act to combinations engaged 
in foreign commerce. Some lawyers have held that 
the Sherman Act does not apply in foreign com- 
merce; others have held that it does. While the 
process of unscrambling combinations is still going 
on, and so long as there is any doubt about their 
validity, there will be hesitancy about forming new 
combinations irrespective of their economic value. 

^'A great deal has been said recently about the 
necessity of organizing combinations among indus- 
tries interested in foreign trade if new foreign mar- 
kets are to be successfully developed. There seems 
to be quite a general agreement that the Sherman 
Act should not apply to combinations organized for 
export trade. That the Administration itself rec- 
ognizes the necessity for cooperative effort in open- 
ing new markets is indicated by the speech of the 
President of the United States before the Third An- 
nual meeting of the Chamber of Commerce of the 
United States, on February 3, 1915, when he said : 

^^ ^I want to know how cooperative methods can 
be conducted for the benefit of everybody who wants 
to use them, and I say frankly that if I can be shown 
that, I am for them. If I cannot be shown that, I am 
against them. I hasten to add that I hopefully ex- 
pect that I can be shown that. ' " * * * 

^^ Opening new markets abroad costs money. 
Wasteful competition in such markets injures the 
American manufacturer, serves to discourage effort, 
and benefits only the foreign consumer and the for- 
eign competitor. In its last analysis, unprofitable 
foreign trade is a burden upon the industry at home, 
whereas profitable export business results in a pros- 
perity for the particular industry, in which capital 
and labor share, and which ultimately benefits the 
domestic consumer. ' ? * * * 

''Combinations for the doing of export business, 
which would result in the shutting out of other con- 
cerns from the foreign field as the result of a monopo- 
listic scheme of organization, would probably be il- 
legal under the Sherman Act as at present construed. 



188 

And yet export trade, with its many difficulties and 
problems, requires sncli a concentration of resources 
and effort that the great benefits to be derived by 
the whole country from a large foreign commerce 
argue powerfully for the removal of all restrictions 
upon combinations in export trade.'' 

Mr. John D. Ryan, President of the Amalgamated Cop- 
per Company, in an address before the National Foreign 
Trade Convention at "Washington, D. C, on May 27 and 
28, 1914, in speaking of this particular question, said : 

^^The United States is a country of great natural 
resources; its farms are producing every year cot- 
ton, wheat, corn and foodstuffs in enormous quanti- 
ties to clothe and feed the people of many nations 
besides our own; its mines are the richest and most 
productive of the world, and supply raw materials 
to every important manufacturing nation of the 
world ; its forests furnish every continent of the earth 
with building materials. Are these products of the 
soil and of the mines and forests always to be sold 
abroad in enforced competition? Is every producer 
of this country to be compelled by our Grovernment 
to under-sell his neighbor in order to market his 
product in foreign countries! It seems absurd — it 
is more so than it seems — and yet there is more to 
be considered than the competition of our own pro- 
ducers when we are striving for foreign markets. We 
have to meet not only the enforced competition of 
our own people, but also the combined buyers of 
other countries, where combinations are legal. Eng- 
land permits combinations which our Sherman Law 
prohibits, France encourages them, and Germany not 
only encourages but, at times, compels its citizens 
to enter into them. You have read, doubtless, all of 
you, within a month, of the great rejoicing in Ger- 
many because, through the efforts of the Emperor, 
the great German shipping companies were brought 
together after a break of a few months, into an agree- 
ment to -^^ and maintain the rates on freight and 
passenger traffic, to the profit of Germany — and the 
ITnited States of America will foot the bills. We 
furnish the tonnage and the travel, so why should 



189 

Germaiis compete for our money when tliey can so 
much better take "all the traffic will bear" and di- 
vide it in proportion between themselves ? 

"We meet the combined buyers of Europe in sell- 
ing our great treasures of the soil, the mines and the 
forests, and we meet them each of us fighting not 
only for himself but against his own countrymen, 
and the combined buying strength makes its terms 
against the divided sellers ' necessity. When we load 
our products on the pier for export we meet the ship- 
ping combine — German-English-French. We pay 
the rates they fix in their pools and combinations. 
We sell our products to the combined buyers of for- 
eign nations and they fix the price at which they will 
trade. If our producers must sell, they will take the 
price offered by the foreign combination, or, by wait- 
ing until one of them is forced by necessity to sell 
at a sacrifice, the price for all is reduced. 

"In ten years ending 1913, a number of large cop- 
per-producing companies of the United States sold 
through their several selling agents : 

"5,560,000,000 pounds of copper, of which 2,580,- 
000,000 pounds vras sold to domestic consumers, and 
2,980,000,000 pounds to foreign consumers, bringing 
a total of $821,000,000 in money. The foreign buy- 
ers paid an average price of 14 38/lOOc. per pound 
delivered at foreign ports ; the domestic buyers paid 
an average price of 15 21/lOOc. per pound delivered 
at home, or 83/100 of a cent per pound more than 
the foreigners paid. This represented about one- 
half of the copper produced in this country, and was 
consumed almost one-half at home and one-half 
abroad. If we take it for granted that other pro- 
ducers sold at about the same average price, the 
foreign manufacturers w^ho put labor and profit 
into our copper for the markets they were sup- 
plying had a handicap of fifty million dollars in 
that period as against the American manufac- 
turers, in spite of the fact that producers of raw 
copper have had no tariff protection or any Govern- 
mental help to keep domestic prices higher. The 
handicap is simply the result of the advantage com- 
bined foreign buying has had as against competitive 
selling, and the domestic manufacturer could not 
take the same advantage because the law of his coun- 



190 

try was holding him and the foreigner's law was 
pushing him. 

^^Much has been said in recent years about the 
conservation of our natural resources, but how can 
this beneficent policy be more ruthlessly defeated 
than by the sale of our mineral and forest products 
to foreign consumers at prices which are less than 
those which might and should prevail if American 
producers could with respect to such foreign markets 
have the same privilege of protecting prices as the 
citizens of other countries?" * * * 

^'The only argument I have ever heard advanced 
against permitting agreements or understandings re- 
lating solely to export trade, is that they might re- 
sult in advancing the cost to domestic consumers of 
articles covered by the agreements. I say that that 
would not at all be the effect, for if no agreement re- 
stricting production is permitted — and none of us 
advocate that it shall be — and if the agreements as 
to foreign markets result in advancing prices there, 
and as a result of advanced prices consumption 
abroad fell off, the excess production would have to 
be marketed at home for what it would bring, and 
the benefit of price reduction would be gained by our 
own people. 

^^It has been said, too, that producers and manu- 
facturers having agreements as to foreign markets 
would be brought into such close relations one with 
another through those agreements, that sub rosa they 
w^ould agree to domestic trade. That is a repetition 
of the charge that our business men are dishonest. 
Most of them are not, and the dishonest ones will 
need nothing to bring them together to evade the 
laws, for they will do it whenever they see a chance. 
The men and the corporations who will always ob- 
serve the law of the land are entitled to be given the 
liberty of action in their business which the best in- 
terests of the country and its citizens demand, and 
laws must not be enacted, or left upon the statute 
books if already there, that hold and hamper the 
honest man only to give advantage to one who will 
evade them secretly. 

^^To compel competition one with another by 
Americans engaged in trading in foreign markets to 
sell our products to the combined buyers of other 



191 

countries can be compared fairly with the sending 
of an army equipped with bows and arrows to fight 
the armies of the world, carrying modern guns and 
using modern ammunition. The result is just as cer- 
tain, and so far as manufacturers are concerned, I 
will attempt to show how utterly we have failed in 
winning our place in the world's markets. 

' ' We exported in the year 1913, $2,448,000,000 worth 
of raw products and manufactures. The Department 
of Commerce in its statistics reports many articles 
as ** manufactures" that are really only '^fit for man- 
ufacture"; for instance, copper in plates, bars and 
ingots is listed as ^'manufactured," when it really is 
only '''fit for manufacture," and, in the terms of 
the trade, is "raw copper." Many other instances 
of like classification occur. I have taken the 1918 
statistics, and as nearly as can be determined by 
conferring with exporters in various lines, and by 
classing all food products as raw, I make the figures 
for the year 1913 : 
Raw and partly manufactured products 

exported $1,676,000,000 

Manufactured products exported or 
about 68% raw and 32% manufac- 
tured 772,000,000 

"Of the manufactured products, $430,000,000 or 
nearly 60%, are included in the three classifications: 
'Agricultural Implements,' 'Mineral Oil' and 'Iron 
and Steel' — the three lines of export trade which 
have been built up largely by the so-called 'trusts.' 
The export business of these large concerns has been 
won by a fight in the foreign markets, backed by cap- 
ital sufiicient to get our share of the world's business 
in these particular lines, in campaigns lasting over a 
long period of years and entailing enormous ex- 
penditures to get a footing. Other manufacturers 
in the same lines will all testify that the trusts have 
done pioneer work in creating markets that have 

helped their smaller competitors sell their goods." 

******** 

"No small manufacturer can develop a market 
abroad for any product he makes, unless it is a pat- 
ented article on which foreigners cannot compete, for 
he has not the capital or the organization to seek the 
markets and fight for them single-handed. ' ' 



192 

We have quoted at length from Mr. Ryan because he is 
recognized throughout the country as a man thoroughly 
versed in the foreign trade. 

This Commission conducted hearings throughout the 
country on the question of the advisability of permitting 
combinations among American exporters for the exten- 
sion of foreign trade. While we have not had access to 
the records of their hearings, according to the reports in 
the press there was substantial unanimity as to the de- 
sirability of, as well as to the necessity for, such com- 
binations if our foreign trade is to be extended as it 
should be. Mr. Henry P. Davison of J. P. Morgan & 
Co. is reported to have said : 

^* Joint selling agencies are another essential if 
we are going to compete successfully with older for- 
eign countries. We must have some form of asso- 
ciation. The average manufacturer and producer 
and certain corporations might combine in carrying 
overhead charges, and in this way economize ex- 
penses. Without some such combination we cannot 
get into the foreign field successfully." * * * 
^^ Were cooperation permissible, independent manu- 
facturers would be greatly benefited by combining in 
joint selling agencies in foreign business. Some such 
export selling organization is necessary.'^ 

We have quoted from but a few of the many experts 
and students who have expressed themselves on this sub- 
ject. 

Every one familiar with the history leading up to the 
enactment of the law creating this Commission is aware 
of the insistent demand for some form of legislation 
which should free foreign trade from the uncertainty of 
the application of the Sherman Act thereto. The neces- 
sity for this was keenly felt by those familiar with the 
situation ; and the desire for such legislation was not con- 
fined solely to those who wished to engage in foreign 
trade and who felt they were unduly restricted, but was 
shared by officers of the government as well. This gen- 
eral demand was recognized in the law through the enact- 



193 

ment of paragraph ^'h'^ of Section 6, which empowers the 
Connnission to investigate trade conditions in and with 
foreign countries, etc., ^'and to report to Congress there- 
on, with such recommendations as it deems advisable.'' 
The discussion of the development of the foreign trade 
by the Court in United States v. United States Steel Cor- 
poration, 223 Fed. Eep. 55, is both illuminating and in- 
structive, as it is the judicial finding to date on the char- 
acter of competition met with in foreign markets, and on 
the obstacles which an American manufacturer has to 
overcome in order to maintain himself in these markets. 
We cite the appropriate page for each extract from the 
opinion: 
At page 98 : 

^^'Now foreign trade is not a mere general, the- 
oretical abstraction of selling abroad, but is a con- 
crete, definite, commercial business proposition in 
iron and steel. " * * * '' Moreover, in consider- 
ing the possible range of foreign iron and steel mar- 
kets for American iron and steel, there must first 
be excluded from that market, Germany, France, 
Austria, Italy, and Russia. The proof is (volume 
10, pp. 3846, 3847) that the tariffs of each of those 
countries prevent the sale there of American iron 
and steel. The proofs also show (volume 10, pp. 
3827-3849) that the attitude of the English public 
and the hostility of English labor organizations 
toward American iron and steel likewise prevent 
American iron and steel products entering England, 
save wire fences, the manufacture of which is only 
now being taken up there. It follows, therefore, that 
the iron and steel trade of the United States with 
foreign nations must be largely built up in other 
parts of the world, and such has been the outcome of 
the efforts of this company as shown by the proofs. 
Referring to trade in such nations as are not closed 
to the iron and steel business by their tariffs, these 
in a general way are the steel markets of Asia, 
Africa, the British Colonies, all South America, 
Cuba, and Mexico. But while these markets are 
open, they were, when the Steel Corporation was 
formed (Vol. 10, p. 4125), practically preempted by 



194 

foreign manufacturers and foreign merchants; that 
is, principally continental concerns, English con- 
cerns, as well as having branch offices and ware- 
houses in all of the consuming markets of the world. 
It was a very difficult thing to enter those markets. 
The European manufacturers had been established 
in the markets of South America, Asia, Africa, and 
the Orient, some of them over 50 years. There was 
not only a prejudice, but a hostility, in most cases, 
against newcomers in the trade.' " * * * 

'^Moreover, the proofs (Vol. 10, p. 3842) show, and 
such would seem to be the manifest commercial fact, 
that: 

'' 'It is impossible to develop a foreign business 
unless it is done continuously. Buyers will not pat- 
ronize people who are not in a position to give them 
a continuous source of supply.' 

'^ "Without entering upon a discussion of other mat- 
ters, it suffices to say that, not only were these for- 
eign markets preempted and tenaciously held by 
foreign manufacturers, foreign merchants, and for- 
eign bankers who refused to finance importing enter- 
prises there unless there was (Vol. 10, p. 3833) a 
stipulation that all materials should be brought in 
such bank's own country, but the markets required 
the maintenance of varied lines of products, the only 
way to supply such varied lines was by maintain- 
ing varied lines of finishing mills at home and the 
maintenance of large warehouses (Vol. 13, p. 4974; 
Vol. 11, p. 4139) abroad." * * * Pp. 98-99. 

"From the proofs in the case three things seem 
settled, namely: That when the Steel Corporation 
was formed American steel manufacturers had no 
real dependable export trade abroad ; that such sales 
as they made were spasmodic, made with a view to 
dumping surplus product; and such sales were se- 
cured by underselling the European market when 
they had no home market. It will also appear that 
being excluded by the steel tariffs of Germany, 
France, Russia, Austria, and Italy, and by other 
causes from England, such dependable foreign mar- 
kets as were open for them to build up, as will be 
seen later, had to be found in other parts of the 
world." Pp. 100-101. 

* * * ^<It will be observed that in thus reduc- 



195 

iiig the price of basic steel materials to enable manu- 
facturers to enter the foreign markets, the Steel Cor- 
poration has pursued the same helpful course of 
lower freights for exports which the Interstate Com- 
merce Commission has, since 1903, approved of the 
railroads doing. In that regard the proofs show 
(Vol. 11, pp. 4474, 4475) : 

^* ^If a shipment is made from Pittsburgh to New 
York under a bill of lading beginning and ending 
with Pittsburgh and New York, that where it is 
known that it is going to be exported the rate is less 
than when it is known it is going to stop in New 
York; the tariffs are published. * * * There is 
an export rate and a domestic rate, and the govern- 
ment has encouraged the export business to the ex- 
tent of permitting the Interstate Commerce Commis- 
sion to make export rates. The export rates have 
been in effect since 1903.' 

'*And we may add the proofs (Vol. 10, p. 3933) 
show that the Interstate Commerce Commission has 
gone to the extent of differentiating among different 
articles for export, making freights on export rails 
lower than on other export articles. We may here 
say that the Interstate Commerce Commission and 
the railroads in thus cooperating with the Steel Cor- 
poration, and these other manufacturers in allowing 
lower freights from interior points to the seaboard 
on goods intended for export, has followed the policy 
adopted in European countries. In that regard the 
proofs (Vol. 28, p. 12037) show: 

^'The German government and the German rail- 
roads help for the export of finished products, but 
they charge the full domestic rate for any finished 
product that is imported.' " * * * p. 103. 

''The fact that the development of the foreign 
trade necessitated a wide diversity of products, that 
this product diversity was to be obtained by the Fed- 
eral Steel Company acquiring a number of mills 
making such diversity of products and completely 
integrating itself is shown by the proofs." * * * 

''And that such foreign trade demanded such wide 
diversity of product as could only be supplied by a 
company which was broadly integrated to manu- 
facture such diversified supplies is shown by the 
proofs." * ^ * p. 105. 



196 

^^That this is a correct business estimate of the 
demands of the foreign market is corroborated by 
the testimony of the president of probably the most 
widely diversified range of finished steel products 
company in this country, who (Simmons, Vol. 23, p 
9403) says: 

'' ^Q. In what way has your ability to carry on 
a foreign business been affected by the fact that you 
have a full line consisting of many kinds of edge 
tools and cutlery? 

^^ ^A. Without that, we would have practically 
no business abroad. 

'^^Q. Why is that! 

^^ *A. Because no one line or one item in the line 
would be sufficient to interest the foreign buyers. 
It is the completeness of the line under one brand 
and one uniform quality that they seem to take an 
interest in. 

*^ ^Q. That is, they buy full lines of you, do they? 

'^^A. Yes, sir.' 

'^Of the fact that this policy of foreign trade ex- 
pansion was as such entered into by the company 
and has since been pursued, the proofs are full. 
(Roberts, Vol. 13, p. 4969; Vol. 11, pp. 4147, 4148.) 
A most experienced man of one of its constituent 
companies, the American Steel & Wire Company, and 
who had developed its foreign wire business, was 
given absolute charge of the development, along the 
lines previously advocated (Schwab, Vol. 11, p. 4147 ; 
Farrell,Vol.lO, pp. 3774, 3775), of all the export busi- 
ness. In 1903, the Products Company, a subsidiary 
of the Federal Steel Company, was created for that 
express purpose. A systematic plan was pursued of 
establishing foreign distributing warehouses and of 
building up new freight lines and shipping facili- 
ties." P. 106. 

Indeed, no clearer or more direct statement of what 
an American manufacturer must do in order to establish 
and maintain himself in foreign trade will be found than 
that presented in the opinion in this case. 

In a recent address before the Banker's Association at 
Indianapolis Mr. George W. Perkins, among other things, 
said : 



197 

^^ We. may not have to face a war at arms with 
foreign nations, bnt we are certain to face war in 
industry with foreign nations. War may not come, 
but peace will surely come, and, after peace, indus- 
trial conflict. " * * * ^ ' It is a great mistake to 
expect Europe to be hopelessly crippled, indus- 
trially speaking, when this war is over." *• * * 
''No civilized people ever had such golden oppor- 
tunities within their reach, and yet no unprepared- 
ness to take advantage of them is so great that they 
are slipping away from us, and, as matters stand 
today, when peace ' comes we shall find ourselves 
worse off in the matter of our foreign trade rela- 
tions than we were when the war began. ' ' 

These statements are mere truisms known and under- 
stood by all. Yet it seems at times as if it were as difficult 
to secure action where both cause and effect are known as 
it is where the question is still open to debate. Modern 
inventions, from a commercial standpoint, have made the 
nations of the world competitors in the world's markets. 
In some respects both time and distance have been an- 
nihilated, and it will not be long before the merchant in 
New York can talk directly to a customer in any part of 
the globe. If we are to participate in the world's com- 
merce we must arm ourselves with every weapon which 
will help us to enter the conflict on even terms. That we 
cannot isolate ourselves is certain. That we would not if 
we coTild is equally certain. It therefore behooves us 
to prepare ourselves for the inevitable struggle for 
commercial supremacy. Such preparation can come only 
through our doing all that intelligent study shows to be 
necessary to enable us to hold our own in every part of 
the world. 

The same thought is expressed in a recent address de- 
livered by Mr. Edward N. Hurley, Vice Chairman of this 
Commission, in New York City, December 12, 1915, from 
which we take the following excerpts : 

Heretofore the American business man, whether 
manufacturer or otherwise, has been prone to show 
an interest in foreign trade only during dull periods. 



198 

Now that business has improved and factories are 
running full time in this country, I am afraid there 
is a growing feeling of indifference toward oppor- 
tunities ahead. The theory has been advanced that 
it will require years for the countries now at war to 
resume their normal rate of production, and that 
the business is bound to come to us anyhow. This 
is a serious mistake. It was only a few months after 
the Franco-Prussian war when France was pro- 
ducing almost as much as before. She did not re- 
cover her normal purchasing power for twelve years, 
but this was due to the heavy indemnity Germany 
laid upon her. 

The American manufacturer should realize that 
not a smokestack has been destroyed during this war 
in England, Germany, or Italy, and only a few in a 
small part of France. 

Unless we take advantage of the great opportunity 
we now have we will find that ninety days after the 
war is over Germany, France and England, and 
other European nations, will be on their way to a 
position in the markets of the world even stronger 
than they occupied before. 

True business preparedness demands that every 
American manufacturer who makes a product that 
can be sold abroad should aim to sell from 10% to 
20% of his output to foreign consumers. A market 
tvliich includes both foreign and domestic business 
stabilises industry and insures the manufacturer, his 
employees, and the country against the ivorst effects 
of financial and commercial depressions. * * * 

And I might mention, by the way, that such com- 
merce can now be more easily developed, since, for 
the first time in our history, we have begun to estab- 
lish our own banks abroad, thus removing many of 
the difficulties surrounding foreign exchange and 
credit information. With American branch banks 
established in South America and projected in the 
Far East, there is no reason why our business ex- 
pansion should halt. 

Cooperation the Only Safeguard. 

Perhaps you may think that I am over-earnest 
in this advocacy of organization, higher efficiency in 



199 

business methods and modern practices, the adop- 
tion of European ideals of thoroughness, the stand- 
ardizing of accounting, but my earnestness proceeds 
from an understanding of the critical condition which 
confronts American business. The great war has 
brought to us great opportunities, and equally great 
dangers. The thought that we must keep in mind is, 
^^ After the war, what?" Shall we grow and expand 
while the growing is good, or calmly wait the time 
when peace in Europe will be followed immediately 
by fierce competition not only in foreign markets 
but in our domestic market as well? * * * 

Industrial preparedness must be the watchword. 
Let us have better organizations and greater elBfi- 
ciency at home ; let us push our trade abroad ; let us 
develop our industry so strongly that no foreign 
competition can dislodge it. (Italics ours.) 

All students of the question have arrived at the same 
conclusion, and when this conclusion is tested by experi- 
ence it is proved to be sound. The development of the 
foreign trade of Germany of late years has been mar- 
velous, and this trade does not consist of raw material. 
It is largely composed of fully manufactured products, 
many of them carried to the last degree of refinement, 
A study of German laws and administrative action re- 
veals the facts that in every particular and by every rea- 
sonable method that country encourages its home manu- 
facturer and helps him to get his goods into the markets 
of the world. A great merchant marine was built up; 
railroad rates were framed to aid the manufacturer; 
branch banks were established in foreign countries and 
were active agencies for promoting trade there ; coopera- 
tion and combination were not only permitted but were 
expressly made lawful and at times compelled. Price 
agreements were recognized as necessary and were legal- 
ized. Representatives of the foreign department, no mat- 
ter how high in the diplomatic world, were always at the 
back of the German merchant, and sometimes ahead of 
him. In other words, Germany realized that only through 
cooperative, intelligent effort and efficient organization 



200 

based on sound economic principles could she hope to 
make headway in the world's commerce. Recognizing 
this, she put into effect every possible agency, and in a 
very short time, comparatively speaking, secured results 
that astonished the world. It has been said by Commis- 
sioner Hurley: 

^^In European countries, manufacturers and mer- 
chants aided by their governments have developed 
a high state of efficiency, which enables them to sell 
their goods in the markets of the world. The Fed- 
eral Trade Commission desires to do what it can to 
help bring the American manufacturers and mer- 
chants on equal terms with these foreign competi- 
tors in order that they may be able to get and hold 
our share of foreign trade." 

Thus we see that, whether judged by experience or 
based on the advice of experts or the opinions of stu- 
dents, there is but one answer, — one conclusion. If this 
country is to compete in the markets of the world the 
same intelligent and sustained effort will have to be 
made as has been shown by our competitors. The oppor- 
tunity is here. The question is, will we take advantage 
of it? 

The possibilities appeal to all alike. A fair share of 
the world's trade is a prize well worth a nation's ambi- 
tion. It is the fruits of peace we seek, not the prizes of 
war. If the merchants of America are given the oppor- 
tunity to meet their competitors in foreign fields on equal 
terms and the chance to show the spirit of progress that 
inspires them, the ambition that stirs them, then they, 
like the merchants of all times and in all places, will be 
the forerunners of civilization, the builders of empires 
based, not on might, but on the forces that lead to peace 
and prosperity. 

And why should not the American merchant have this 
opportunity? "What rule of reason, practice, economics, 
or morals would be violated if he should be placed in a 
position where on terms of equality he can distribute the 



201 

work of the American mechanic throughout the world? 
It seems to us that no question is more worthy of the 
consideration of our statesmen; nor in any field is the 
opportunity for success based on merit so great. We 
simply have to face these problems as they are. We must 
recognize the facts as they exist, and the subject will 
need to be dealt with broadly, constructively, and patri- 
otically. If it be considered in such a spirit it is not dif- 
ficult to foresee the magnificent future that lies before 
this country in the foreign field. 

(d) Is Such Comhination Necessary for the Development 
of the Export Lumber Business? 

As heretofore stated, the lumber industry in the North- 
west in its inception and for many years thereafter was 
confined to local and cargo business, both domestic and 
foreign. When the industry started and for some time 
afterwards much the larger portion of British Columbia 
was a wilderness, and its manufacture of lumber was 
nominal. The rapid growth of the Prairie Provinces 
created a large demand, and at prices more profitable 
than the cargo business afforded. In consequence, the 
efforts of the manufacturers were directed toward sup- 
plying this demand rather than toward developing the 
export trade. Of late, however, the keenest interest is 
being displayed both by the manufacturer and by the 
British Columbia government in the export business, and 
it would be a serious mistake to assume that British 
Columbia will not become an increasingly potent competi- 
tor with the manufacturers of the United States in the 
markets of the world. The section of this brief dealing 
with the policy of British Columbia toward its forests 
and lumber industry, together with what will be said 
under this heading, will, it is hoped, aid the Commission 
in forming a fair conclusion as to the competition which 
the American manufacturer will have to meet from this 
quarter in the immediate future. 



202 



(7) Estimated Effect on Domestic Situation of Increased 
Export Trade. 

We will now consider more concretely the probable ef- 
fect on onr domestic trade of an increase in the export 
lumber trade. From information gathered from a num- 
ber of reliable sources it may safely be said that an 
increase in export trade will prove of benefit to the 
domestic trade. An idea seems to prevail that only high 
grades of lumber are exported, and that if this trade be 
increased the result will be either an accumulation of low 
grade common lumber to be dumped on the domestic mar- 
ket or a great waste of raw material in the woods. We 
shall later set out the grades of lumber now exported 
and let the facts speak for themselves. This, however, 
is but part of the story. We have heretofore tried to 
make clear that as the market is now handled the ultimate 
buyer and seller do not come together, that there is no 
serious attempt to merchandise lumber (and under pres- 
ent methods there cannot be), and that in consequence 
higher grades are often used where lower would do as 
well, to the detriment of both the user and the producer. 
Unquestionably a better understanding as to needs and 
requirements on the one hand and as to the value of the 
wood on the other would lead to better results for all 
concerned. It is not at all impossible, as has been sug- 
gested by some leading manufacturers, that buying on a 
mill run basis may ultimately be as common in this section 
as it is in others. One of the chief ends sought through 
cooperation in the export trade is the bringing about of 
better merchandising conditions, wider distribution, and 
a proper understanding of the real value of our woods. 
Many of our export mills are also what are termed rail 
mills, selling their products in the markets according to 
their respective demands. The operators of these mills 
on anything like a fair market handle their product so 
that no ^^ dumping" results. On the other hand, if they 
cannot find an export market, their output must be taken 



203 

care of at home or they must cease to operate. The 
marketing of common Inmber is a problem, bnt, according 
to manufacturers with large experience, the export busi- 
ness aids in its solution rather than making it more diffi- 
cult. One manufacturer writes : 

'^Instead of the export business forcing a large 
quantity of low grade material on the market it pro- 
vides a means of removing from our domestic mar- 
ket a very large quantity of common lumber, which 
would otherwise be forced upon our own markets, 
with a lowering of prices possibly, as may be very 
well exemplified by our present off-shore situation. 

^* Owing to the extreme scarcity of tonnage that 
has prevailed during the past year, mills that were 
formerly doing a considerable portion of export busi- 
ness have been forced into the domestic field and 
they are marketing their output at home, except 
w^here they have closed their mill down entirely. The 
result has been, considering cost of production, that 
we have probably had the lowest prices any time in 
the history of the fir business. While we cannot at- 
tribute the prevailing low prices entirely to the lack 
of export business it has, however, been a decided 
factor in aggravating the situation. ' ' 

(1) 

What grades of lumber will he exported chiefly? 

All grades as low as No. 2 common are exported. The 
bulk of the lumber exported is described as merchantable 
as provided in export Gr list. For China the specifications 
generally call for 50% merchantable and 50% No. 2 mer- 
chantable or common. The specifications take almost the 
entire product of the log with the exception of the clears 
and No. 3 common, sometimes termed ^^ culls.'' The re- 
quirements of Australia are such that only the highest 
class of merchantable lumber is shipped. Practically no 
clear lumber is shipped to Australia as clear, for flooring 
and stock of that character come from the Baltic. It has 
heretofore been explained that owing to the tariff large 
sizes are generally sent from this country to Australia. 



204 

It has also been sliown that unnecessarily high grades are 
shipped to this territory, a condition which a better ac- 
quaintance with the trade, as well as with the product, 
would obviate. To the Port Pirie market in southern 
Australia mining timbers of low grade, but suitable for 
the purpose, are taken. 

In Central America and Mexican ports the grade is 
usually common, with occasional selected common for a 
special purpose, which will grade about equal to mer- 
chantable of the export list. There is also a small demand 
for other grades of stock, No. 2 clear and better. 

In the Philippines the requirements are usually for 
common and better. 

On the West Coast of South America the grades re- 
quired are merchantable, but are not graded as high as 
shipments for the Australian market. Many mills figure 
there is at least 50 cents per thousand difference in grade 
between Australian merchantable and West Coast mer- 
chantable. Considerable 1x6 clear and select is shipped 
to the West Coast and some T&Gr flooring. In South 
Africa they take about the same grades as the West Coast 
of South America. 

In G-reat Britain and the Continent they take high 
grade merchantable lumber, although the specifications 
for merchantable ordinarily call for timbers and plank. 

Japan takes large size squares running from 16x16 to 
30x30, which enables the mill to get rid of the entire 
product of the log with the exception of the clear trimmed 
off in squaring up the log. 

This covers in detail the markets taking b^ far the 
larger part of the export lumber. The manufacturers 
state that there is no limit to the amount of trade that 
could be worked up on the product of the log excepting 
the competition from other woods that can reach the terri- 
tory to better advantage than ours. Ordinary common 
and better grades have always found their way into the 
export trade. It is stated that the exports of Douglas fir 
have not run over 10% clear. 



205 

(2) 

How will the disposal of the remainder affect the 
home market f 

Most of .the manufacturers state that better prices for 
export and the proper exploitation of foreign markets 
will reflect a better condition in the domestic market. As 
to the low grades, the manufacturer usually tries to find 
a local market where there is but little expense in the 
way of freight to add to the cost. We are advised that 
the experience of the past does not bear out the assump- 
tion that because a high price is secured for a certain 
grade of lumber the remainder will be dumped. It is 
also suggested that the domestic stocks will in reality be 
improved in quality by reason of the export markets 
demanding a continually increased percentage of lower 
grades and decreased percentage of select grades of com- 
mon. It is also felt that this situation would be more 
rapidly brought about through contact of representatives 
of mills in foreign countries with buyers and users, as 
there seems to be no question that the trade could and 
would use lower common grades for many purposes if the 
buyers were better educated as to the value of the 

material. . 

(^) 

Will a surplus of low grades accumulate, making the 
low grade problem more serious and close util- 
ization of timber more difficult? 

The answers to that may be thus epitomized. The gen- 
eral response is in the negative, that the real value of the 
product will be determined from time to time ; that less 
w^aste will accumulate; and that no manufacturer will 
permit a surplus of low grades beyond the normal accu- 
mulation of stock. 

(4) 

Will the '^ dumping^' of surplus material, unsalable 

abroad, upon the markets of the United States 

demoralize the domestic trade? 

Again the general consensus of opinion is that it will 

not ; that more intelligence in operation will be developed ; 



206 

that mills will not be constrncted or operated to take ad- 
vantage of tlie dumping of the surplus in the domestic 
trade ; and that in the natural course of the development 
of the business such matters as these will be taken care of. 

(5) 

Will this result in benefit to the domestic consumers, 
or will any such benefit be merely temporary and 
the ultimate result a serious loss to all interests 
dependent on the thrifty use and permanence of 
the national timber supply? 

This question is of course predicated upon the theory 
that there will be a dumping of surplus material and a 
resultant low price to domestic business. It is the belief 
of the manufacturers that this export business will de- 
velop the industry through the extension of business 
abroad; that direct and better merchandising will in- 
crease utilization through the further and more refined 
manufacture which will be called for; that the interests 
of the forests will be thereby conserved; and that the 
conditions implied in the question will not result. 

(6) 

Are high, relatively low, or average profits antici- 
pated in the export business? That is, will the 
principal advantage of the extension of foreign 
■ trade be to extend the more profitable trade, put- 
ting the exporter in a position to undersell on 
the home market? Will the foreign market serve 
mainly to take surplus stocks at little or no 
profit? Or will the export trade stand on its oivn 
footing without affecting the domestic market 
one way or the other? 

Average profits will be anticipated in the export busi- 
ness, although market conditions will determine just how 
high or how low they will be. It takes trade demands in 
various territories for different kinds of lumber, with the 
necessary variations in price, to produce an average 
price. The manufacturers on this coast feel that, wher- 



207 

ever possible, they should extend the market for all 
grades of lumber which can be furnished. What the man- 
ufacturer is trying to do, is to get his product into the 
best sizes and grades possible and dispose of them at the 
very best possible prices. The American manufacturers 
compete with others besides themselves, and do not and 
cannot control the export markets. 

Freights have much to do with the selling prices, but 
a stable price on the product would result in popularizing 
it abroad and relieving it from the exceptional losses 
due to wide fluctuations. The export trade will not affect 
the home market detrimentally. The relief, by disposing 
of all grades that can be sold, will benefit it. 

Where mills are located so that they can take advan- 
tage of rail on both domestic and export shipments there 
is a general interchange of business, depending upon the 
desirability of the market, and one affects the other. The 
better operators take percentages in each district, rather 
than cut entirely for one market or the other. Domestic 
business stands largely on its own bottom and does not 
always follow the fluctuations of the off shore market, 
although a dearth of export orders almost always affects 
the rail business seriously, as is the case today and has 
been for some time past. 

The foreign markets will not serve mainly to take sur- 
plus stocks at little or no profit. On the contrary, the 
foreign export business has been and is treated as a per- 
fectly legitimate branch of the lumber industry which, if 
operated as it should be, will not only redound to the 
advantage of the export business but to that of the do- 
mestic business as well. 

(8) Inspection and Grading. 

Regarding the standardization of grades and the in- 
spection service, it may be well to state that most excel- 
lent work is now being accomplished by the Pacific Lum- 
ber Inspection Bureau, which has been in operation for 
ten years. It was originated by the manufacturers, and 



208 

is conducted at moderate cost and with the best talent 
that can be secured. The certificate of this Bureau is 
recognized as standard and is acceptable in all foreign 
markets. From the statements made by the manufac- 
turers they are satisfied with the present arrangement, 
and we do not think they would view with favor the estab- 
lishment by the Forestry Department of a bureau of 
inspection for foreign shipments of lumber. There may 
be some confusion between the grades of this coast and 
those prevailing in the buyers' country, but we are ad- 
vised that this question is one of merchandising, and is a 
feature that direct selling would tend to eliminate, and if 
the manufacturer and foreign buyer were closer together 
unquestionably a better mutual understanding between 
them would be reached. 

It is not always possible for the manufacturer to con- 
form to the buyer's wants in grades and sizes, although 
the buyer may be accustomed to securing these grades and 
sizes in other species of wood; but here again the ques- 
tion of cooperation enters into the problem. If the manu- 
facturer were in a position to place men in the several 
markets of the export field to study the conditions in 
person and consult with the real buyers and users of their 
product, in time all differences would be clarified and a 
much better understanding arrived at. It has heretofore 
been pointed out that it is impossible for an individual 
mill to carry on such work. AYhere the Forest Service 
could help in this matter would be, if they approve, to 
endorse grading rules and inspection service carried on 
by the manufacturers at their own cost. These rules now 
have this endorsement, as we understand, in connection 
with purchases for the Panama Canal and Alaska, and if 
this approval were given there need be no difficulty with 
the exporters. 

"While the questions submitted are serious and should 
be considered, they are by no means of major importance. 
What is desired on the Pacific Coast is an opportunity 
to enlarge the field of operations and to enlarge the 



209 

export trade ; and it is the unanimous opinion of the man- 
ufacturers that an increased export trade at reasonable 
prices will be beneficial not only to the manufacturers 
engaged in this business but to the domestic mills as well. 

(9) Importance of an American Merchant Marine. 

Closely allied to the question under discussion is that 
of shipping in general, and particularly the development 
of a merchant marine upon which the American producer 
and merchant can rely. This war has taught many les- 
sons, but none has sunk deeper into the consciousness of 
the American people than the conviction that through 
some means and by some method the commerce of this 
nation must be protected against injuries arising out of 
causes for which this country is in no wise responsible. 
No great nation can afford to have its oversea trans- 
portation in the hands of commercial rivals ; and it is 
perfectly obvious that in our foreign trade, and to some 
extent in our domestic trade as well, the missing link is 
transportation. One of the great problems is to secure 
facilities to move commodities between markets promptly 
and at reasonable cost. As Mr. Charles M. Schwab has 
well said : 

'^What good is it to manufacture well and to sell 
well, if we cannot deliver the goods we manufacture 
and sell?'' 

This topic would in itself justify an extended discus- 
sion, but it is only one of the many factors touching the 
general subject under consideration; and although it is 
of great consequence its solution lies in other hands. It 
does, however, bear directly on the development of the 
export trade, and probably no industry has felt the ma- 
lign effects of the lack of transportation more than has 
the foreign lumber trade on this coast. By far the larger 
portion of this business is done on chartered vesels, and 
not by the regular lines. The advance in charters has 
been such as to force lumber at the mill for foreign busi- 



210 

ness to cost and sometimes less. Lower than this it 
cannot very well go. 

All rates are based on M feet of lumber, B. M. To 
give the Commission some idea of the course of charters 
since the war we submit the following data : 

Normal rates to Sydney are from 30 to 40 shillings 
per M, or roughly about $7.50 to $10 per M. They have 
advanced to 97s. 6d. In Septem^ber rates to Melbourne 
were 107s. 6d. or roughly about $26 per M., B. M. To the 
West Coast of South America rates have more than 
doubled, being now about $21 per M. To Cape Town they 
advanced from about $15 per M to $37 per M. To United 
Kingdom normal rates are about 50 shillings, or say 
$12.50 per M. Changes have been so rapid it is difficult 
to keep a line on charters in this trade. In September 
one steamer was chartered at 192s. 6d., or say $48 per M, 
and at that time space on the regular lines was costing 
(when it could be secured) 210s., or say $50. When the 
rate is expressed in dollars, we have given the approxi- 
mate figure, not calculating exchange with strict accuracy. 
What with lack of transportation and with rates on the 
bases quoted, the effect on the price of lumber at the mill 
is easily foreseen. Even with an abundant supply of 
ships on the rates given above, which in many instances 
are from two to four times the value of the product, busi- 
ness would have been restricted ; but with a combination 
of both lack of tonnage and prohibitive rates the offshore 
business was not only curtailed but prices were forced 
down at the mill to the irreducible minimum. The nor- 
mal price for a mixed cargo for Australia is about $14 
to $15 per M; to China about $2 less. In October Aus- 
tralian cargoes sold for about $9.50 to $10.50 per M, and 
to China as low as $7.50 per M. Necessarily there was a 
restriction of business, as the only demand was that 
which had to be met. When the transportation is in the 
hands of others, and often controlled by the purchasers 
themselves, the producer is at their mercy if he desires 
to sell. Some have chosen the only other alternative 



211 

and closed their mills; others are running on part time 
rather than operate or sell under existing conditions. 

It is very difficult to express in figures the enormous 
loss to the United States resulting from this failure to 
have tonnage to carry our products to the markets of the 
world. The selling price at home of commodities usually 
exported to foreign markets is the price at the point of 
consumption less freight, insurance, and other usual 
charges. The advances in charters on lumber represent 
increases running from 200% to 400% over normal. As 
no advance in lumber at point of production has been 
received (on the contrary, the price was forced to cost), 
it is apparent that the loss to the producers of lumber in 
this country runs into millions. Instead of securing any 
part of the advanced price, the producers of lumber for 
export have been compelled to sell at prices that in no 
instance showed a profit and in many cases did not even 
return cost, the entire advance being absorbed by the 
freight rate. 

Even if the alternative theory is accepted, namely, 
that American ships would under the circumstances have 
advanced freights also, such advances, if we had had 
sufficient ships to transport our products, would not have 
been so great, and the freight money at least would have 
enriched our own people instead of foreigners. It is, 
however, when we get into the realm of food products 
that the direct loss to the American farmer is more strik- 
ingly apparent. On the Pacific Coast the price of wheat 
is fixed by the Liverpool price ; and that price determines 
the value for all the wheat produced, whether exported or 
held for domestic use. In 1914, Oregon, Washington and 
Idaho produced about 61,000,000 bushels of wheat alone. 
On July 18, 1914, blue stem wheat sold on track at Port- 
land, Oregon, for 83 cents per bushel, club wheat at 77i/> 
cents per bushel. The rate to the United Kingdom that 
day by steamer was 30 shillings per ton or 19 28/100 
cents per bushel. By February 10, 1915, the price of blue 
stem on track at Portland was $1.58y2, club wheat $1.57 



212 

per bushel. Charters at that time had advanced but 
slightly, the rate on a British bark that day being 32 shil- 
lings or 20 56/100 cents per bushel. It will be observed 
that with charters normal the advance in price was all 
going to the farmer. Note what followed. On May 12, 
1915, the steamer rate to the United Kingdom was 70 
shillings, or 44 99/100 cents per bushel; and wheat, al- 
though advancing in Liverpool, sold on track at Portland 
for $1.20 and $1.14 per bushel for blue stem and club, 
respectively. On September 17, 1915, the steamship char- 
ter rate was 87 shillings 6 pence, or 56 24/100 cents per 
bushel; the price of wheat on the same day at Portland 
was 91 cents for blue stem and 86 cents for club. Since 
then charters have continued to advance, and in the latter 
part of November, 1915, 100 to 105 shillings were being 
asked for sailing vessels and within a fraction of 140 
shillings for steamers to Europe. Wheat is about the 
same price that it was prior to the war. In this instance, 
while the actual charges may be paid by the ultimate con- 
sumer, the producer is directly affected, for the price he 
receives is that paid at destination, less the freight rates. 
In other words, his price is the Liverpool price less the 
freight and other charges. 

The loss to the farmers of the Northwest only, it will 
thus be seen, amounts to millions. Applying the same 
test to the wheat production of the United States, the loss 
nins into staggering totals. 

Even at the rates in force our trade is seriously af- 
fected; and at this time the congestion at every port is 
such that there is a substantial if not an actual embargo 
on movement. Not only is freight held in overcrowded 
terminals, but miles of side-track are filled with cars that 
cannot be unloaded. 

In discussing the importance of dependable transporta- 
tion facilities in export trade, a writer in the ^ ^ Canadian 
Lumberman and Woodworker, ' ' June 1, 1915, urges most 
vigorously the establishment by the government, through 
some method, of "the necessary minimum supply of ship- 



213 

ping which will secure the progressive continuous growth 
of a solid export trade for British Columbia lumber." 
He insists that this is a requisite and essential if the 
oversea trade is to be developed. From reports of a more 
or less reliable character received recently there are indi- 
cations that British Columbia or Canada is preparing 
to take some affirmative action in this matter. 

The writer referred to asserted that it was through the 
ownership of vessels that Norway and Sweden established 
and maintained their lumber trade. It seems that in the 
eighties British ship owners sold to the Norwegians a 
great deal of sail tonnage fitted only for carrying lumber, 
coal, etc., and in consequence of having this tonnage a 
trade was developed wholly out of proportion to that 
warranted by her timber resources. He comments thus : 
^'Without the absolute assurance of stability to the trade 
that was given by the possession of tonnage to move their 
goods, it is doubtful if the capital investments would have 
been so heavy or the consequent high skill of her planing 
mill stuffs developed." Referring to the Australian 
trade he writes : ' ' The establishment of a regular line of 
steamers, sailing monthly from the Scandinavian ports 
to Australia, led undoubtedly to a gain of over 10,000,000 
feet B. M. (nearly 50%) in the planed goods exported by 
Sweden to Australia in 1913 as against 1912. ' ' 

Surely these facts, coupled with others equally striking 
with respect to our foreign trade in every commodity and 
with every country, must impress every loyal citizen with 
the conclusion that this nation of nearly one hundred 
million people cannot permit its foreign commerce either 
to be controlled by the policy of commercial rivals or to 
be at the mercy of difficulties in which alien nations may 
at any time be plunged. Our carrying trade must be, 
measurably at least, in our own hands, and we be as inde- 
pendent commercially as we are politically. Commercial 
independence cannot be attained, nor supremacy in inter- 
national trade secured, with shipping facilities in the 
hands of other nations. This fact, which should have 



214 

been generally recognized years ago, is now accepted by 
all. It is of no consequence now to rehearse the various 
arg-uments wliicli were used to lull us into fancied se- 
curity, or to ask who probably inspired them. We are 
at present face to face with a condition which must be 
met, and all patriotic Americans should in this instance 
at least cooperate in an effort that will once again put and 
keep the American flag in the place on the high seas which 
our national dignity and commercial importance demand. 
The cost of learning the lesson, — of what the lack of an 
American merchant marine really means to us, — ^has been 
great ; but if as a result a reah American merchant marine 
is developed and maintained, it will be worth all it has 
cost. 

President Wilson, on December 7, 1915, delivered his 
annual message to Congress. Among other things he 
dealt with the question under discussion. We quote the 
following : 

' ^ But armies and instruments of war are only part 
of what has to be considered if we are to provide for 
the supreme matter of national self-sufficiency and 
security in all its aspects. There are other great 
matters which will be thrust upon our attention 
whether we will or not. There is, for example, a 
very, very pressing question of trade and shipping 
involved in this great problem of national adequacy. 
It is necessary for many weighty reasons of na- 
tional efficiency and development that we should have 
a great merchant marine. The great merchant fleet 
we once used to make us rich, that great body of 
sturdy sailors who used to carry our flag into every 
sea, and w^ho were the pride and often the bulwark 
of the nation, we have almost driven out of existence 
by inexcusable neglect and indifference and by a 
hopelessly blind and provincial policy of so-called 
economic protection. It is high time we repaired 
our mistake and resumed our commercial independ- 
ence on the seas. 

''For it is a question of independence. If other 
nations go to war or seek to hamper each other's 
commerce, our merchants, it seems, are at their 



215 

mercy, to do with as they please. We must use their 
ships, and use them as they determine. We have not 
ships enough of our own. We cannot handle our 
own commerce on the seas. Our independence is 
provincial, and is only on land and within our own 
borders. We are not likely to be permitted to use 
even the ships of other nations in rivalry of their 
' owm trade, and are without means to extend our 
commerce even where the doors are wide open and 
our goods desired. Such a situation is not to be en- 
dured. It is of capital importance not only that the 
United States should be its own carrier on the seas 
and enjoy the economic independence which only an 
adequate merchant marine would give it, but also 
that the American hemisphere as a whole should en- 
joy a like independence and self-sufficiency, if it is 
not to be drawn into the tangle of European affairs. 
Without such independence the whole question of our 
political unity and self-determination is very se- 
riously clouded and complicated indeed. 

'' Moreover,' we can develop no true or effective 
American policy without ships of our own — not ships 
of war, but ships of peace, carrying goods and carry- 
ing much more; creating friendships and rendering 
indispensable services to all interests on this side 
the water. They must move constantly back and 
forth between the Americas. They are the only 
shuttles that can weave the delicate fabric of sym- 
pathy, comprehension, confidence, and mutual de- 
pendence in which we wish to clothe our policy of 
America for Americans. ' ' * * * 

' ' Our goods must not lie piled up at our ports and 
stored upon side tracks in freight cars which are 
daily needed on the roads ; must not be left without 
means of transport to any foreign quarter. We must 
not await the permission of foreign shipowners and 
foreign governments to send them where we will. ' ' 

INFLUENCE OF STANDING TIMBER 
EXIGENCIES. 

It would betray insincerity, or at least superficiality, 
were this brief to ignore the fact that many points it dis- 
cusses involve standing timber problems to an extent 



216 

which it does riot cover in detail. The tremendons invest- 
ment in standing timber, involving a time period which 
makes interest calcnlations profonndly important; the 
circumstances and requirements of this investment; and 
the dependence of the industry therein on outside capital 
— all evidence a problem of public economics and of finan- 
cial pressure upon the raw material which cannot but 
influence the conduct of operation. It is significantly true 
that such influences in the past, and their trend in the 
future, cannot fully be disclosed by any conservative re- 
view of manufacturing conditions today. It is also true 
that while many manufacturers are timber owners, many 
timber owners are not manufacturers and may, on some 
details, have a different viewpoint. Generally speaking 
this would involve longer time periods in considering any 
phase or necessity of the industry. 

To enter into a full discussion of these questions would 
therefore perhaps be beyond our credentials as well as 
certainly beyond our purpose. It would require covering 
the whole range of economics as related to ownership or 
control of natural resources. We assume that they have 
been the subject of more appropriate investigation whose 
conclusions are available. It is sufficient here to empha- 
size that whatever the exigencies of forest ownership, and 
whatever the just demands these may make, they must 
inevitably require favorable conditions of manufacture 
and distribution. We need not fear they will conflict with 
any argiunent for such herein, but may confidently expect 
that they will prove still further necessity for permanent 
stability of the industry. 

HISTOEY AND PURPOSES OF THE LEGISLA- 
TION. 

(1) In General. 

The act creating the Federal Trade Commission was 
passed too recently, and is too much a part of contem- 
porary history, to require a statement of its genesis. 



217 

Some time prior to the introduction of the bill in Con- 
gress to create a Federal Trade Commission, the Bnrean 
of Corporations had undertaken to make a *^ survey of the 
industrial field." Mr. Joseph E. Davies, when Commis- 
sioner of Corporations, in an address delivered by him 
before the National Association of Hardware Manufac- 
turers at Atlantic City, October 31, 1913, said : 

^^It is the intent and purpose of the Bureau of Cor- 
porations, acting under the direction of the Presi- 
dent of the United States, to make a survey of the 
industrial field and an intensive investigation of this 
subject. We shall enter into this investigation with 
the sole intent of working out, in a scientific and 
fair-minded spirit, the facts absolutely as they are. 
So vital and so fundamental is this problem that to 
attack it in any other spirit would be criminal. What 
is needed is light, not heat." * * * 

*^We ask for the sympathetic cooperation of the 
business men of this country. This problem reaches 
down to the fundamentals of government itself. It 
is a problem that will tax the greatest minds of this 
generation and the next. In its solution lies a chal- 
lenge to the constructive genius of the financier, to 
the imagination and the heart of the captain of in- 
dustry. In its solution there lies a compensation 
greater than can be found in private fortune ; for in 
it lies service for the children of men yet unborn." 

(2) President's Message of January 20, 1914. 

The President in his message of January 20, 1914, 
recommended the creation of an Interstate Trade Com- 
mission and in his message referring to the purpose of 
the proposed legislation said : 

^^What we are purposing to do, therefore, is hap- 
pily, not to hamper or interfere with business as en- 
lightened business men prefer to do it, or in any 
sense to put it under the ban. The antagonism be- 
tween business and government is over. We are 
now about to give expression to the best business 
judgment of America, to what we know to be the 
business conscience and honor of the land. The Gov- 



218 

ernmeiit and business men are ready to meet each 
other half-way in a common effort to square busi- 
ness methods with both public opinion and the 
law.'' * * * 

^^The business of the country awaits also, has long 
awaited and has suffered because it could not obtain, 
further and more explicit legislative definition of the 
policy and meaning of the existing anti-trust law. 
Nothing hampers business like uncertainty. Noth- 
ing daunts or discourages it like the necessity to take 
chances, to run the risk of falling under the con- 
demnation of the law before it can make sure just 
what the law is.'' * * * 

''And the business men of the country desire some- 
thing more than that the menace of legal process in 
these matters he made explicit and intelligible. They 
desire the advice^ the definite guidance and informa- 
tion which can be supplied by an administrative body, 
an Interstate Trade Commission.'^ (Italics ours.) 

(3) Discussion at Meeting of Chamber of Commerce of 
the United States, Washington, D. C, 
February 12, 1914. 
It may be remembered that the Chamber of Commerce 
of the United States held its second annual meeting at 
Washington, D. C, February 12, 1914. At this meeting 
much of the discussion revolved around the so-called 
^ * Trust Legislation. " In no instance were monopolies in 
production or trade defended or even approved. On the 
other hand, cooperation in business was advocated by 
every speaker, on the ground, as stated by Dr. Van Hise, 
that ^^cooperation in business niay be just as advantage- 
ous to the general public as is cooperation in education, 
in social work, or any other line of human endeavor. Co- 
operation is the cry of humanity in this twentieth cen- 
tury, and commerce should not be eliminated from shar- 
ing its great benefits. In our desire to retain legitimate 
competition, we should take care not to outlaw legitimate 
cooperation." The Interstate Commerce Commission 
and the State Commissions having control of public util- 
ities seemed to some to ** point the way for the next step 



219 

in the solution of our industrial problems'' — in other 
words, the creation of a Trade Commission with power 
to act constructively in dealing with industrial and trade 
matters. The uncertainty and doubt as to how the De- 
partment of Justice or the Courts would construe this or 
that act, or ^'the intent" they would ascribe to it, and the 
effect of this uncertainty on business was a matter of fre- 
quent comment. Indeed, there can be no question but 
that the business interests of the country were looking 
for legislation that would substitute certainty for doubt 
and clearness for vagueness, and anticipated that if a 
Commission to deal with business were created it would 
be endowed with sufficient power to be a guide to honest 
business rather than another punitive measure with the 
negative ^^thou shalt not" as its only effective provision. 
Mr. Louis D. Brandeis discussed *^The Democracy of 
Business" at this meeting. Referring to the proposed 
legislation, he said : V^I want, however, to say this : The 
program of President Wilson is not a program of free 
and unrestricted competition, but it is a program of 
regulating competition instead of regulating monopoly. 
* * * And in the carrying out of this idea of ad- 
vancing business, of putting business into its proper place 
among human activities the Government of the United 
States may play a great part. I look forward to the Trade 
Commission which we are about to establish as an in- 
strument which will be of inestimable advantage to the 
business and the future of America by making the com- 
mon property and the common knowledge of American 
business men the best that has been done and is being 
done in every department of business throughout the 
world. ' ' 

(4) Introduction of Bills in Congress. 

Identical measures, H. R. 12120, by Mr. Clayton, and 
S. 4160, by Mr. Newlands, providing for the creation of a 
Federal Trade Commission, were introduced in the House 
and Senate respectively on January 22, 1915. No par- 



220 

ticular purpose would be served by following the legisla- 
tive course of the bills through Congress, but it is known 
that much of the debate revolved around Section 5, deal- 
ing with ^'unfair competition,'' its meaning and effect. 
It is, however, beyond question that the Commission is 
endowed with semi- judicial powers to prevent ''unfair 
methods of competition," which by the law are declared 
unlawful in conmierce, and is empowered through ap- 
propriate means to enforce its administrative orders. 

(5) Unfair Methods of Competition — Extracts from. 
Committee^ s Report — Comments. 

Senator Cummins, who opposed defining the meaning 
of the term ''unfair competition,'' stated his views both 
as to why it was not susceptible of definition and as to 
why it was unwise to attempt to define it, and gave his 
idea of the duty of the Commission in determining if 
*' unfair competition" or "unfair methods of competi- 
tion" were being practiced, thus: 

"I affirm that when we say no man shall be guilty 
of unfair competition in commerce we have laid down 
a rule that is as well understood and as capable of 
definite application as the great majority of the 
statutes which we have enacted. We are dealing 
with commerce, with business. It has manifold 
forms. It is of infinite variety ; and it is utterly im- 
possible to prescribe a rule of conduct relating to 
commerce so definite that there can be no difference 
of opinion respecting its application. We never have 
done it. No country ever did it. We never will be 
able to do it." (Congressional Record, July 31, 
1914.) * * * 

"It would be the duty of the board to consult the 
custom of merchants, the habits of trade, the writ- 
decisions of the courts, the learning of the time, the 
ings of studious and thoughtful men, all of which go 
to make up our understanding of the words 'unfair 
competition. ' It will be the duty of the Commission 
to apply those words in that sense precisely as it is 
now the duty of the Court to apply the words 'un- 



221 

due restraint of trade' in the sense in which we com- 
monly understand that phrase." (Congressional 
Rec, July 31, 1914.) 

The bill was reported back to the Senate June 13, 1914 
(Report No. 5977). The following statements from the 
report shed some light on the purpose of the bill and the 
powers of the Commission : 

^^The value of such administrative oversight and 
control has been recognized in the banking and 
transportation business, and we have in the Comp- 
troller of the Currency, the newly-created Federal 
Reserve Board, and the Interstate Commerce Com- 
mission practical illustrations of the operation of 
such organizations and frequent examples of the 
beneficial effects of their activity. As the general 
^ realization of these facts is widespread and confined 
to no one particular party, the introduction of this 
bill for a trade commission simply responds to a gen- 
eral need.'' (p. 9.) * * * 

'^The powers, of course, must be large, but the 
exercise of the powers will not be against law-abid- 
ing business, but against lawless business. It will be 
persuasive and corrective rather than punitive so 
far as well-intentioned business is concerned. Al- 
though the Commission is given a, wide discretion, 
experience has proved that governmental adminis- 
trative bodies seldom abuse such authority. To at- 
tempt to make precise limits between what they may 
and what they may not do would often seriously ham- 
per their successful administration. " (p. 12.) * * * 

*'With the exception of the Knight case, the Su- 
preme Court has never failed to condemn and to 
break up any organization formed in violation of the 
Sherman law which has been brought to its atten- 
tion; but the decrees of the Court, while declaring 
the law satisfactorily as to the dissolution of the com- 
. binations, have apparently failed in many instances 
in their accomplishment simply because the courts 
and the Department of Justice have lacked the ex- 
pert knowledge and experience necessary to be ap- 
plied to the dissolution of the combinations and the 
reassembling of the divided elements in harmony 
with the spirit of the law." (p. 12.) * * * 



I 



222 

^ ' The Committee gave careful consideration to the 
question as to whether it would attempt to define the 
many and variable unfair practices which prevail in 
commerce and to forbid their continuance or whether 
it would, by a general declaration condemning un- 
fair practices, leave it to the Commission to deter- 
mine what practices were unfair. " (p. 13.) * * * 

'^It is believed that the term 'unfair competition' 
has a legal significance which can be enforced by the 
Commission and the courts, and that it is no more 
difficult to determine what is unfair competition than 
it is to determine what is a reasonable rate or what 
is an unjust discrimination. The Committee was of 
the opinion that it w^ould be better to put in a gen- 
eral provision condemning unfair competition than 
to attempt to define the numerous unfair practices, 
such as local price-cutting, interlocking directorates, 
and holding companies intended to restrain substan- 
tial competition." (p. 13.) 

If this Commission has, even in a measure, the over- 
sight and control of unfair methods of competition and 
conduct of business that the Comptroller of the Currency, 
the Federal Reserve Board, or the Interstate Commerce 
Commission have with respect to subjects under their ju- 
risdiction, it can do many affirmative acts in aid and 
furtherance of commerce. Mr. James A. Fayne, of Bos- 
ton, prepared a paper on "The Federal Trade Commis- 
sion; The Development of the Law Which Led to Its 
Establishment," which was published in "The American 
Political Science Review. ' ' In closing his analysis of the 
law he said : 

' ' The Commission, therefore, comes on to this field 
of combat with the 'rules of the game' fairly well 
defined, and with the last court of the land having 
intimated clearly enough three things — just ivhat are 
unfair methods of competition, just what is restraint 
of trade and just what is monopoly. To this extent, 
at least, it should not he difficult for the new hoard 
to cooperate with the husiness interests of the coun- 
try, suggesting and recommending, and thereby re- 
ducing to a minimum the likelihood of^ disturbing 
suits for dissolution, which latter can hardly he con- 



223 

templated with equanimity in the existing delicate 
situation of commerce and finance." (Italics ours.) 

(6) President's Address of February 3, 1915. 

The act was approved September 26, 1914. On Febru- 
ary 3, 1915j the President addressed the Chamber of Com- 
merce of the United States, and in referring to foreign 
trades said: 

^^The question arises, therefore, how are the 
smaller merchants, how are the younger and weaker 
corporations going to get a foothold as against the 
combinations which are permitted and even encour- 
aged by foreign governments in this field of (for- 
eign) competition? There are governments which, 
as you know, distinctly encourage the formation of 
great combinations in each particular field of com- 
merce in order to maintain selling agencies and to 
extend long credits, and to use and maintain the 
machinery which is necessary for the extension of 
business; and American merchants feel that they 
are al; a very considerable disadvantage in contend- 
ing against that. The matter has been many times 
brought to my attention, and I have each time sus- 
pended judgment. I want to he shown this: I want 
to he shown how such a comhination can he made and 
conducted in a ivay which ivill not close it against the 
use of everybody who wants to use it. A combina- 
tion has a tendency to exclude new members. When 
a group of men get control of a good thing, they do 
not see any particular point in letting other people 
into the good thing. What I would like very much 
to he shown, therefore, is a method of cooperation 
which is not a method of combination. Not that the 
two words are mutually exclusive, but we have come 
to have a special meaning attached to the word ' ^ com- 
bination." Most of our combinations have a safety 
lock, and you have to know the combination to get 
in. / want to know how these cooperative methods 
can be adopted for the benefit of everybody who 
wants to use them, and I say frankly if I can he 
shown that, I am for them. If I cannot he shoiun 
that, I am against them. I hasten to add that I hope- 
fully expect that I can he shown that.'' (Italics ours.) 



224 



(7) Address of Mr. Joseph E. Davies, February 15, 1915. 

We take the following excerpts from the address of 
Mr. Joseph E. Da^T.es, then Commissioner of Corpora- 
tions and now Chairman of this Commission, discussing 
the Federal Trade Commission Act, as published in ^^The 
Nation 's Business, ' ' February 15, 1915 : 

"The term of seven years, and the successive ex- 
pirations of the respective terms insures continuity 
of purpose and that there shall be finally applied to 
this problem the judgment and experience of a body 
of business men of trained and specialized knowl- 
edge, who are designed not only to bring an under- 
standing of the theoretical and economic and legal 
questions involved, but as well a sympathetic appre- 
ciation of the practical difficulties and troubles of in- 
dustry, together with a comprehensive perspective 
of the industries of this country and the interests 
and welfare of the general public who are affected 
most by these conditions. It is the logical, scientific 
and efficient way of meeting the situation. > ' * * * 

"The justification of the Commission will be found 
in large measure by the extent to which the assem- 
bling, digesting and interpreting of these data shall 
develop into constructive aid to business enterprises 
of the country, and to the extent to which it will ren- 
der service in giving a broad, sympathetic and ac- 
curate basis for the action of this governmental 
agency in the discharge of its functions in the serv- 
ice of the general public. ' > * * * 

"But the great and momentous task which con- 
fronts the people of this country and the business 
men of this country in connection with this problem 
is bigger than such considerations. The problem 
reaches down to the fundamental question of the kind 
and character of the government we shall evolve in 
this great experiment of government, which chal- 
lenges, indeed, the existence of democracy itself. No 
republic ever has, or ever will, live except as it solves 
correctly its relation and the relation of all of its 
people to the production of wealth. Here lies a chal- 
lenge to the big-mindedness of the captain of indus- 
try, to the philosophy of our economists, to the 



225 

thought of our scholars, and to the patriotism of our 
citizenship. 

^^TJie purpose and object of this legislation has 
been and is to convert the anarchy of unlicensed com- 
petition into a condition under law of competitive lib- 
erty, which will preserve those seeds of individual 
initiative and enterprise which have contributed to 
the art, to the science, to the literature, and to the 
welfare of our civilization, so that the seeds may ger- 
minate and flower into still greater blessings for man- 
kind/' (Italics ours.) 

(8) Statement by Mr. Edward N. Hurley. 

In an issue of the ^^ Federal Trade Eeporter," Commis- 
sioner Hurley is reported to have said : 

**In European countries, manufacturers and mer- 
chants, aided by their governments, have developed 
a high state of efficiency, which enables them to sell 
their goods in the markets of the world. The Fed- 
eral Trade Commission desires to do what it can to 
help bring the American manufacturers and mer- 
chants on equal terms with these foreign competitors 
in order that they may be able to get and to hold 
our share of foreign trade. ' ' 

(9) Purpose of the Act. 

General Boyle has with great care gone through what 
might be termed the contemporary legislative history 
showing the purposes of this legislation, so we have con- 
fined ourselves to the briefest contemporary business 
thought and official expressions as to the intent of the 
proponents of the law. 

There can be no question as to what was in the mind 
of the business men of the United States at the time this 
legislation was enacted, nor as to what it was supposed 
the law covered. No truer words were ever spoken than 
when President Wilson said : ^ ^ Nothing hampers business 
like uncertainty. * Nothing daunts or discourages it like 
the necessity to take chances, to run the risk of falling 
under the condemnation of the law before it can make 



226 

sure just what tlie law is," and lie spoke for every inter- 
est in the country when he followed the above statement 
by these reassuring words : 

•^^And the business men of the country desire some- 
thing more than that the menace of legal process in 
these matters be made explicit and intelligible. They 
desire the advice, the definite guidance and informa- 
tion ivhich can he supplied hy an administrative body, 
an Interstate Trade Commission/' (Italics ours.) 

This statement then followed : 

^^The opinion of the country would instantly ap- 
prove of such a Commission." 

Is it not pertinent to ask what the words *^ guidance 
and information," as used, mean? Taken in connection 
with the context, the reference to ^^uncertainty," to the 
menace of ''legal process," to the discouragement attend- 
ant on taking chances because of inability to knew what 
the law is, can it be a matter of doubt that what must have 
been in the President's mind was a remedy for an exist- 
ing condition which was plaguing the business man and 
hampering business? And what was the trouble, what 
were the things that were harassing business ? The Pres- 
ident himself told. They were the uncertainty of the law, 
the vagueness of the line separating that which might be 
found lawful from that which might be found to be un- 
lawful, and the discouragement which necessarily accom- 
panied the taking of chances with consequent penalties, 
before one ''can make sure just what the law is." With 
the context in mind, with the purposes of the proposed 
law in view, it is unreasonable to assume that all that was 
meant was the creation of a board simply to advise as to 
more efficient operating methods, or to furnish trade in- 
formation.. For these purposes only no commission was 
necessary. There can be but one conclusion as to the in- 
tent of the proposed law, and that is that an administra- 
tive body was to be created with power to prevent unfair 
methods of competition no matter what its form, to pro- 



227 

tect business against the menace of this kind of competi- 
tion, to advise, before and not after the harm was done, 
and to advise npon the very matters and things that 
brought about and justified the enactment of the law. In 
other words, the Commission is to be a constructive 
agency. We agree with the statement of Mr. Brandeis 
that in ^^ putting business into its proper place among 
human activities the government of the United States 
may play a great part. ' ' Indeed, we go further and say 
it should play this part. The spirit of ' ^ sympathetic co- 
operation of the business men of this country" asked for 
by Mr. Davies is being given in full, and wdth such a spirit 
much will be accomplished. In one of Chairman Davies ' 
addresses he stated : ^ ' The purpose and object of this leg- 
islation has been and is to convert the anarchy of unli- 
censed competition into a condition under law, of com- 
petitive liberty, which will preserve those seeds of indi- 
vidual initiative and enterprise which have contributed 
* * * to the welfare of our civilization, so that the 
seeds may germinate and flower into still greater bless- 
ings for mankind." We, of course, do not know just 
what was in the mind of the speaker, but the reference 
to the ^^ anarchy of unlicensed competition" must and can 
only mean that there were kinds of competition which 
were under the control of the Commission, and that it was 
the duty of the Commission to protect, and that it in- 
tended to protect, industry and individuals against the 
character of competition described, and against methods 
of competition which it deemed unfair. 

(10) Powers of Commission. 

The Commission has a discretion which it can exercise 
within its powers, to define and limit the point to which 
competition may go, that is to say, to define unfair meth- 
ods of competition. There can be no doubt that the dec- 
laration of Section 5 ^'That unfair methods of competi- 
tion in commerce are hereby declared unlawful" is all- 
inclusive and defies and was intended to defy strict defini- 



228 

tion. ^^ Unfair methods'^ are declared to be iinlawful, 
and this Commission is empowered and directed to en- 
force this mandate of the law. Moreover, the Commis- 
sion is to be the judge of what constitutes unfair methods, 
just as the Interstate Commerce Commission determines 
what are unreasonable rates, or what acts constitute un- 
due preferences, etc. This power is as broad as the evil 
sought to be controlled, and the machinery is supplied by 
law to ascertain and find the facts, to make an appro- 
priate order, and to enforce it. 

It is true that the law is not specific and does not state 
in exact terms what the Commission may or may not do, 
or attempt to define just what acts are ^^ unfair''; and 
it is somewhat difficult to see how a law of this character, 
with the particular objects in view, could be framed so as 
to be more explicit without impairing its usefulness and 
effectiveness. The yard stick by which the powers of the 
Interstate Commerce Commission in fixing rates or deal- 
ing with matters under its jurisdiction are measured is 
no more definite. Charges for transportation must be 
^ ^ just and reasonable, ' ' and ' ^ every unjust and unreason- 
able charge" is ** declared to be unlawful." '* Undue or 
unreasonable preferences ' ' are forbidden, etc. These and 
the like, are the declarations found in the Act to Regulate 
Commerce, under which the rates and practices of the 
railroads of the United States are regulated and con- 
trolled. These powers are no more definite than the all- 
inclusive declaration of Section 5 of The Federal Trade 
Commission Act, ''That unfair methods of competition 
in commerce are hereby declared unlawful. ' ' 

(11) Operation of Law. 

The operation of a law of this kind depends very 
largely upon the purpose and spirit of those whose duty 
it is to enforce and carry out its provisions. It can be 
destructive or constructive. A law can be limited in its 
effect or can be expanded, depending upon the opinion of 
those having to do with its enforcement as to the real 



229 

purpose sought to be secured by the legislation. St. Paul, 
in his Second Epistle to the Corinthians, 3d chapter, 6th 
verse, thus states the spirit in which the words of the 
New Testament should be taught : ' ' Who also hath made 
us able ministers of the New Testament ; not of the letter 
but of the spirit ; for the letter killeth but the spirit giveth 
life.'' 

It is in this spirit that the provisions of this law must 
be construed, if it is to fulfill the evident purpose of its 
proponents, as well as the hope and expectation of the in- 
dustrial and commercial interests of this country. 

We concede the foregoing observations on the law to be 
general in their nature, but as General Boyle will consider 
it in detail we will not pursue the discussion. No mat- 
ter what differences of opinion may exist as to the limit 
of the powers of the Commission, some things they can 
certainly do — both affirmatively and negatively. We have 
heretofore suggested methods through the operation of 
which improvement may be directly brought about by 
those engaged in the industry. There are, however, 
causes affecting the industry detrimentally and of public 
interest over which they have no control, and in connec- 
tion with which this Commission has power both to act 
and to advise. To these matters we will as briefly as pos- 
sible and without unnecessary repetition address our- 
selves. 

(12) Action the Commission May Take. 

We, of course, appreciate, that neither the Commission 
nor the public is interested in the details of any business, 
simply because it is a business, and because any healthy- 
minded man wishes his neighbors well. We know that 
the basis and reason for the inquiry must go deeper than 
that, and that there must be some public interest to be 
served in an inquiry of this kind on which to predicate 
any request for action by this Commission. 

We believe that as a result of the extended hearings 
in this matter and of independent investigations made by 



I 



230 

other governmental agencies it will be found tliat there 
is a pnblic interest to be served, and that the following 
conclusions are fairly dedncible from what might be 
termed the testimony : 

(13) Facts. 

I. No '^ lumber trust'' as this term is generally under- 
stood exists. 

II. The lumber manufacturers of the United States do 
not, indeed cannot, control either the price or the output 
of lumber, nor have they been engaging or are they now 
engaged in harmful and injurious trade practices to the 
detriment of the public. 

III. No '^timber trust" composed of timber owners in 
the United States, who by combination or otherwise have 
controlled the price and output of stumpage to the detri- 
ment or injury of the public, exists. 

IV. The lumber industry generally for some time past 
has not been in a sound condition, and has not been profit- 
able nor in the condition, from a business standpoint, in 
which so large an economic and industrial factor should 
be. 

V. For some time past, neither the manufacturer of 
lumber nor the timber operator has received undue or ex- 
cessive profits, either in the operation of the mill or as an 
investor in timber. 

VI. From the standpoint of the conservation of stand- 
ing timber and of its fullest use, the prevailing methods 
of taxation of standing timber are not to the public in- 
terest, are unsound, are not calculated to produce the best 
results, and will unless modified lead to waste and ex- 
cessive cutting, to the injury of the public. 

VII. Causes do exist and have existed generally within 
the industry which are largely within the control of the 
operators and which have contributed to existing condi- 
tions. Among them might be mentioned lack of coopera- 



231 

tion and associated effort; unscientific methods of ac- 
counting ; indirect and uneconomical distribution, failure 
to refine product ; lack of integration, etc. On the other 
hand the operators and the industry have constantly been 
laboring under disadvantages they could not overcome. 
Among these is an adverse public opinion based upon mis- 
information and misapprehension of fact. 

VIII. A number of causes exist which are not within 
the control of those engaged in the industry, and which 
operate to its detriment. Some of these are taxation and 
adverse local legislation, which are within the control of 
State or other municipal authorities. Others are: lack 
of transportation facilities, both in foreign and domestic 
water-borne trade, selling in markets where foreign com- 
binations largely control, aid in various forms given by 
foreign countries to their nationals who are competing 
in the same markets with our producers, unfair methods 
of competition both in foreign and domestic trade, com- 
petition from National Forests, discouragement of co- 
operation, as well as others which might be named. 

IX. Operators manufacturing lumber for export are 
placed at a great disadvantage in certain markets such 
as Australia and New Zealand, owing to combinations and 
methods having for their purpose the control of such mar- 
kets. The export business is not profitable, nor are the 
mills securing a fair price for their product; and while 
there are opportunities for a large increase in the export 
lumber trade, yet owing to the wide area to be covered 
and the conditions as disclosed by these hearings, such 
trade cannot be developed properly except through the 
closest cooperation of those engaged therein. The export 
trade is largely dependent on shipping facilities, which 
in this country are wholly inadequate to care for the busi- 
ness. In our domestic trade also we compete with citi- 
zens of other nations who can use a vessel flying any flag 
from their ports to ours, while we can use only American- 
built, American-owned, and American-operated vessels. 



232 

Charters favor British Columbia ports to Atlantic ports, 
as against any ports of the United States on the Pacific 
Coast to the same ports, $2.50 to $3 per thousand. An 
increased export trade would be of benefit to the industry 
and to the country at large. 

If the foregoing conclusions are justified by the facts, 
and we believe they are, then they should not be permit- 
ted to rest simply as assertions of counsel, but should be 
established publicly and finally as findings by the Com- 
mission. If they are not the facts, the Commission 
should announce such conclusions as they feel the facts 
justify. 

The lumbermen have no desire to condone or to mini- 
mize their own faults, or the weaknesses within the in- 
dustry measurably under their control. Therefore, in 
connection with the matters hereinbefore dealt with under 
Section 5 of the Domestic division of our treatment of 
particular situations, i. e., ^* matters more or less under 
the control of the manufacturers,'' etc., the Commission 
can be of no more real service, can show its sympathetic 
interest in no more efficacious way, than by frankly and 
candidly pointing out the defects and faults observed, and 
at the same time suggesting the remedies that in its judg- 
ment might be applied to correct them. This would be 
constructive work ; this would be affirmative and not nega- 
tive relief. 

Assuming the facts to be as stated ; assuming that the 
industry is not in a healthy condition, that it has remedied 
or will remedy the deficiencies and weaknesses within 
itself, what will be done with respect to the causes for ex- 
isting conditions for which the operator is not responsi- 
ble? As to these it is believed the duty of the Commis- 
sion and its responsibility as a Trade Commission are 
as plain, direct, and obligatory as they are in passing on 
the facts. 

If the Commission, after a hearing of this character, 
had performed its full duty, merely by conducting the 



233 

hearing, but is powerless to act, one might well say cui 
honof 

It is not believed, however, that such will be the case. 
Therefore, if the facts are as stated, the Commission will 
determine the conclusions to be drawn therefrom. The 
following questions indicate the line of action we believe 
the facts lead to. For the sake of clearness and brevity 
we submit them in the following form : 

(14) Questions. 
I. 

To what extent is cooperation and combination neces- 
sary or desirable in the export trade, and how far, with- 
out affecting the public injuriously, may such cooperation 
or combination be safely carried? (In this connection, in 
the opinion of the Commission further legislation may or 
may not be necessary, which fact would, of course, be 
stated.) 

II. 

Wherein should existing laws be amended or supple- 
mented in order to increase our water transportation fa- 
cilities and place our shipping on a footing equal to that 
available to foreign vessels, in both the domestic and the 
export trade? 

. III. 

What, if any, measures should be adopted by the Fed- 
eral Government to meet and offset the effect of competi- 
tion, both in the domestic and in the export trade, from 
countries whose policy it is to assist their nationals en- 
gaged in such competition by governmental means of 
what nature soever! 

IV. 

What is needed in the way of improvement in the ad- 
ministration of the National Forests, so as best to serve 
both the present and the future needs of the country! 

V. 

What, if any, features of the lumber industry, or of its 
conduct, considering the number of people employed, the 



234 

amount of capital invested, and the stake wMcli the conn- 
try at large lias in it, constitute in the opinion of this 
Commission unfair methods of competition which are or 
may be injurious to the interest of the public? And, if 
the Commission find any such methods to exist, to what 
extent does it believe that their elimination would tend 
to stabilize prices, prevent overproduction, and help the 
business generally? 

VI. 

To what extent will it benefit the public to allow coop- 
eration between lumbermen in the domestic trade ? And, 
in this connection, to what extent, in the opinion of this 
Commission, is it necessary or desirable for groups of 
lumber manufacturers to organize for the purpose of ex- 
changing information, economizing distribution, creating 
selling agencies, and generally advancing the industry's 
interests in any and all matters except the fixing of 
prices ? 

YII. 

To what extent will it be to the interest of the public 
at large to permit agreements among lumber manufac- 
turers having for their object the curtailment of output 
so as more scientifically to adjust the supply to the de- 
mand? 

(15) Suggestions. 

The remarks herein contained on the conduct of the 
National Forests are not meant as a criticism, but are 
intended rather to call attention to a very important 
factor in the general problem. It is far from our purpose 
to criticize the Forest Ser\dce — on the contrary, our in- 
tention is to aid and assist in securing the fullest coop- 
eration of other governmental branches in its efforts to 
establish a broad national policy touching the National 
Forests ; a policy which, we hope, will be permanent and 
constructive in its nature, and will be carried out logically 
and continuously to its final conclusion. Neither do we 
wish to be understood as suggesting that sales of all tim- 



235 

ber from the National Forests should cease. It is desira- 
ble that such sales be made where there is an actual de- 
mand by customers operating under the rei^airements of 
sound business ; but we do not believe it to bo good policy 
from a public standpoint to sell public timber simply to 
secure revenue, or where such selling will induce bad man- 
agement. It is obvious that sales to settlers, miners, and 
for local purposes, etc., cannot be criticizecL But all for- 
ests and the forest industry as a whole are of national 
concern and should be treated under sound economic prin- 
ciples. Moreover, we are impressed with the fact that 
those in charge of the Forest Service are quite as alive 
to the importance of the question under consideration as 
are we, and we look with confidence to them for construc- 
tive recommendations as a result of their own studies. 
On any sound basis the interest of those engaged in the 
industry is identical with the interest of the Forest Serv- 
ice. 

With reference to association work and cooperation in 
domestic trade we have this to suggest : Under the law 
merely combining is not in violation of the Sherman Act. 
The courts hold that in order to come within the condem- 
nation of the law there must be some actual unreasonable 
interference with the natural course of trade. There are 
restraints of trade which are not undue or unreasonable. 
There are combinations that are not illegal. These con- 
clusions we believe correctly state the law. But, after all 
is said, there still remains the element of uncertainty and 
of doubt as to what acts will be held to be undue or un- 
reasonable. Different judges with different bents of 
mind, and with different economic trainings, might and 
probably would reach different conclusions on the same 
state of facts. One judge might hold that cooperation 
prevented competition, and send the offenders to jail. 
Another might say that the efficiency produced, the sav- 
ings made, the expenses eliminated, and the waste saved 
by cooperation were in the interest of the public, and so 
approve what the other judge, condemned. 



236 

It is this imcertainty, this constant menace hanging 
over business — a fear, if you will, of consequences from 
acts which seem entirely right and in accord with business 
principles — that must be removed (and which the vast 
majority of the people believe this Commission has power 
to remove) if business is to go ahead as it should. 

Moreover, business men have been and are being urged 
to cooperate, to associate, to work out common problems 
together. They realize the soundness of this advice, but 
when and where does cooperation and association cease to 
be beneficial, and when is the line reached beyond which 
associated effort may not go, except under the menace of 
the strong hand of the Department of Justice, whereby 
penalties instead of benefits will be the reward of those 
engaged in the industry? It is useless to assume that 
these questions are not in the minds of men. It is vain 
to say that the lawyer can draw this magic line. He 
might, if he could foresee how each and all of the many 
judges before whom a case may be brought will construe 
the same facts. The lawyer knows he cannot do this, and 
his client knows it also. Therefore, one goes round and 
round a never ending circle of doubt and disappointment, 
ending generally in refraining from doing that which 
should be done, because one wisely will not take a risk 
that may involve not only a momentary loss but even, per- 
haps, shame and disgrace at the end of an honorable and 
useful life. The Commission, therefore, should, if it is 
to meet the situation fully, declare within certain limits 
what may be done in cooperation by the various units of 
an industry, and what cannot be done. 

The purpose of the lumbermen of this country in ap- 
pearing before this Commission has been to provide the 
information required to assist it in rendering to Con- 
gress a report on the state of the lumber industry, as well 
as in affording the industry such relief and advice as the 
Commission may find to be proper and necessary, and 
within its power to grant. With its report to Congress 
the Commission mav submit recommendations for legis- 



237 

lation. Unquestionably such recommendations, based as 
they will be npon extensive investigations and the fullest 
consideration of every phase of the question, cannot fail 
to have a great influence on congressional action. The 
scope of such recommendation, or of the resulting laws, 
is of course outside the purpose of this brief ; but we wish 
to urge upon this Commission with special emphasis that 
the questions heretofore submitted refer to matters which 
in our view must be covered if the lumber industry as a 
whole (and with it the great mass of people and the very 
large interests dependent upon it) is to be put upon a 
sound and business-like basis. 

We feel that the industry really needs the advice of this 
Commission and such assistance as it can properly give ; 
and it is our hope that the Commission will conclude to 
give such advice and to announce its definite conclusions 
on the facts as developed. 

(16) Summary. 
In closing, we desire to repeat that in no sense have we 
covered the whole ground. We have dealt very briefly 
with the history of the lumber trade in the Pacific North- 
west and traced its development in the domestic market. 
We have presented a brief survey of conditions in the 
foreign field, sketching the effect of the policies of foreign 
countries and the need for some similar policy in this 
country. We have touched upon the conditions caused 
by our shipping laws and the disastrous results of these 
conditions as exemplified in the effect of the war on our 
transportation problems. In all this we have used the 
lumber industry of the Pacific Coast, and particularly of 
the Northwest States, as an example, because in that sec- 
tion many peculiar problems exist, and the evils of the 
present state of things are very sharply discernible. But 
we have no intention of having it even inferred that that 
part of the country is the sole one needing relief. The 
fundamental difficulties, as this Commission is well aware, 
lie deeper than any merely sectional differences. 



238 

The truth is that the time has come for putting this 
country in the place that it should occupy. The lumber 
industry is but one phase of the work. Our laws, so far 
as they are antiquated and unscientific, should be altered 
so as no longer to cripple American business, both at 
home and abroad, simply because it is American. The 
commercial sense of the nation must be awakened to the 
conditions now prevailing and which will prevail after the 
war in other countries, and to a realization of our irre- 
vocable connection with the rest of the world, if we are to 
participate, as we should, in the world's trade. 

In presenting the various phases of the question, while 
not desiring to do so, we feel that we may have unduly 
trespassed upon the time and patience of the Commis- 
sion. If so, it is because of the deep sense of obligation 
we feel and the duty we owe, not only to the industry we 
are called upon to represent and to this Commission, but 
to the country as well. As we see it, the action of the 
Commission in this case will be epoch-making. It will 
mark a milestone in the progress and development of the 
industry and commerce of the country. It will, we be- 
lieve, give inspiration to the business men to press for- 
ward on sound and right lines in the trade routes of the 
world. We know the economies in production and dis- 
tribution practiced by our foreign competitors. We 
know that we must meet commercial training which is 
quite as efficient in the walks of peace as foreign military 
organization has been effective on the fields of war. We 
know that other governments in the past have been more 
alive to the importance of trade and commerce from a 
national standpoint than has our own. An awakening to 
these facts has come, and this country is stirred as it 
never has been before with the desire to promote and ad- 
vance its interest by developing its commerce throughout 
the world. It is a proud thing to be called upon, as this 
Commission has been called upon, to lead in such an en- 
terprise. Rarely do men have a greater privilege or op- 
portunity of serving their country than has been granted 



239 

to the members of this Commission. But, as we have 
heretofore stated, we have new problems, and we must be 
prepared to meet them. In a recent address before the 
American Manufacturers' Export Association in New 
York the Chairman of this Commission, speaking of the 
foreign competition we are to meet, is reported to have 
said : 

*^When these conditions will obtain in interna- 
tional industry it will require all of our vision and 
discipline, enterprise and conservatism, sagacity and 
daring, to meet them. It will require that our in- 
dustries shall be integrated and stabilized so that 
not only will the economics of sustained production 
be available, but it will require that the social well- 
being of the workers shall also be sustained upon a 
proper level, to the same end. It will require a large- 
minded intelligence and vision in the division of the 
fruits of industry between capital and labor. So- 
cialized autocracy did this before this epochal war, 
in a manner that challenged the admiration of the 
world. It is our task to demonstrate that represen- 
tative democracy can be equally efficient and serv- 
iceable. * * * 

**The economies of large-scale production to the 
extent that they exist, the advantages of integration 
of industry, the sustaining force of stabilization in 
industry, the prevention of feast and famine, the 
prevention of cutthroat competition, can all be en- 
compassed in a democratic state without yielding to 
monopoly in principle or in effect. The problem of 
democracy is to conserve the efficiencies of industry 
to the highest degree that is compatible, with the 
fundamental conception of liberty and freedom in 
industry. The problem of government is not only 
not to thwart efficiencies^ but to stimulate them, to 
aid them, to develop them to the highest degree that 
is compatible with the general welfare. ' ' 

Whether correctly quoted or not, the principles stated 
and the methods suggested are sound and on right lines 
and must be followed if we are to succeed. 

We desire to express the deep appreciation of those 
connected with the lumber industry, and particularly 



240 

those who have had the pleasure and privilege of taking 
an active part in this investigation, of the unfailing pa- 
tience, courtesy, and interest which the Commission has 
shown throughout these hearings. If the lumbermen 
have left anything undone or unsaid they alone are to 
blame, for the Commission limited them neither as to 
time nor as to character of testimony, so long as it would 
shed any light on the questions involved. Counsel who 
have been engaged in this case also wish to testify to their 
deep sense of obligation to the Commission, for the kindly 
and generous treatment accorded them throughout this 
hearing. It has been their desire to aid the Commission 
in every way possible ; and if they have succeeded in any 
degree in lightening its labors or aiding in the solution 
of a difficult problem, they are more than satisfied. 

We now leave the case in the hands of the Commission 
with the feeling that they will approach its consideration 
in a sympathetic spirit, conscious of the importance of the 
task and of what the results of its deliberations may mean 
to the commerce and industry of this country. 

There are, here and there, encouraging signs. Opin- 
ion is slowly rousing, and is seeking guidance. This 
Commission, if it will, can, by educating, moulding, and 
concentrating that opinion along the soundest and broad- 
est lines of statesmanship, render to this country a service 
of incalculable value. 

JOSEPH N. TEAL, 
L. C. BOYLE, 
EOGEES MacVEAGH, 
Counsel for National Lumber Manufacturers Associa- 
tion. 

January, 1916. 



APPENDIX A, 

COMPOSITE STATEMENT OF THE COST OF 
MANUFACTURING LUMBER. 

The following statements and comments comprise the 
body of the formal report on the Composite Statement of 
the Cost of Manufacturing Lumber, compiled by Mr. John 
G. Mcintosh, Certified Public Accountant, in pursuance 
of instructions of a committee of the West Coast Lumber 
Manufacturers' Association. 

A form of cost statement, with explanations showing 
the particular expense to be included in each item of the 
cost on a uniform basis, was prepared and sent to QQ 
mills. Twenty-eight mills contributed statements. The 
failure of the other mills to do so was in most instances 
undoubtedly owing to pressure of regular office routine 
work, which made it impossible to revise the old cost ac- 
counts to fit the uniform statement. 

**The Committee authorized the auditing of the 
statements received. It was found inadvisable to 
check eight of them, for the following respective 
reasons : 

^^(1) Would require some checking at San Fran- 
cisco. (2) None of present office force was employed 
in 1913, and they being unfamiliar with the cost ac- 
counts of that year it was felt that an audit of the 
statement might consume too much time. (3) Did 
not operate in 1913, but their offer to furnish com- 
plete figures for the first half of 1914 was accepted. 
It was, however, found undesirable to incorporate 
1914 figures in 1913 composite statement. (4) Had 
a very short run in 1913. (5) Statement was sub- 
mitted on company's own segregation, which differed 
materially from that of the uniform statement. (6) 
Statement was not sufficiently complete to warrant 

241 



242 

checking. (7 and 8) Did not consent to examination 
of the books. 

''The remaining twenty statements were checked 
in cooperation with the Forest Service, and were 
combined in compiling a composite statement. In 
this formal report the composite statement (after 
making some adjustments assented to by Mr. Gary, 
of the Forest Service) is separated into two parts 
shown on the following page — one representing mills 
that ship by rail and the other representing mills 
that ship both cargo and rail. If yon furnished a 
statement, and it was audited, your individual aver- 
ages are shown for comparison under the heading, 
^YourMilP: 



Composite Statements of the Cost of Manufacturing 

Lumber. 

Embodying the fignires of 20 mills in Washington and 
Oregon for the year 1913. 

Cargo and 
Eail Mills. Eail Mills. 

Total Cut 250,253,916 ft. 441,066,295 ft. 

Average Cut per Mill. . . . 25,025,391ft. 44,106,629ft. 

Total Day's Eun (Includ- 
ing Night Shifts) .... 2,540.5 3,289.8 

Avg. Day's. Eun per Mill. 254. 329. 

Avg. Cut per Day per 

Mill 98,499 ft. 134,076 ft. 

Total Number of Men 

(Day Shift Only) .... 1,244 2,004 

Avg. Number of Men per 

Mill (Day Shift Only) 124 200 

Avg. Wages per Day $2.76 $2.68 

Percentage of Output Sur- 
faced 78% 44% 

Cost 



Cargo and 
Eail Mills. Eail Mills. 

Boom Labor $ .059 $ .064 

" Eepairs & Supplies . .014 .011 

Mill Labor 1.463 1.416 

'' Eepairs & Supplies... .593 .540 



243 

Cost 

Cargo and 
RaiLMills. Eail Mills. 
Total Boom & Mill.... $2,129 $2,031 

Planer Labor $ .590 $ .393 

Eepairs & Supplies . .124 .087 

Kiln Labor 192 .162 

Eepairs & Supplies . . . .019 .011 



n 



Total Planers & Kilns. $ .925 $ .653 

Yard Labor $1,143 $1,112 

Eepairs & Supplies . . .113 .181 



a 



Total Yard $1,256 $1,293 

Total Direct Operation $4,310 $3,977 

Salaries $ .358 $ .286 

Sundry Expense 180 .123 

Industrial Insurance 082 .073 

Fire Insurance 168 .125 

Taxes 079 .083 



Total General Expense $ .867 $ .690 

Depreciation .480 .397 

Total Mfg. Cost 5.657 5.064 

Int. on Plant at 6% . . .410 .434 



Interest on Lumber Stock. . $.202 .119 

^^ Log Stock 069 .069 

'' Accts. Eec'ble.. .092 .063 

'' Current Cash.. .017 .017 



Total Interest on Work- 
ing Capital at 6% . . . $ .380 $ .268 
Total Cost with Int.. $6,447 $5,766 



^^In considering the foregoing figures, the follow- 
ing comment should be borne in mind : 

^'COST OF LOGS and COST OF SELLING are 
not included, excepting that Salaries and Sundry Ex- 
pense cover the usual handling of sales in the office. 
The cost of commissions, separate sales offices, trav- 
eling salesmen, etc., is excluded. The yard cost ab- 
sorbs the handling of lumber sold at retail, the ex- 
tra cost of which is small in a composite statement. 



244 

^'Lost accounts, which were not included in the 
cost, averaged 6I/2C per M on the cut for the rail mills 
and 5c per M for the cargo and rail mills. This in- 
cluded losses on local or retail sales for both classes 
of mills. It may be that there were further losses 
in the latter class, on accounts transferred to San 
Francisco. 

^'Shipping expenses not common to all the mills 
have been excluded, such as scow rent and towing, 
switching to main line of railroad, etc. 

' ' INTEREST. To the ' Manufacturing Cost ' there 
is added the cost of the use of the money tied up in 
plant, logs, lumber, customers' accounts, etc., after 
allowing for amounts owing for payrolls, logs, and 
supplies. The portion of this money which is sup- 
plied by the stockholders might be invested in inter- 
est-paying securities if it were not laid out in the 
saw mill business, and the portion which is borrowed 
requires a direct cash expenditure for its use (inter- 
est). Therefore, while technical accounting would 
exclude interest from the manufacturing account, it 
is in fact a cost of conducting the business and is 
here shown in the cost per M feet of lumber cut. The 
rate of 6% is used in the statement, though money 
to carry stock and accounts costs 7% and 8%. 

^^It will be noted that for convenience the rate 
per thousand for interest on logs and cash is the 
same for all of the mills, though the cargo shipping- 
mills probably require a larger stock of logs per 
thousand for their orders than do the rail mills. 

'' SHUT-DOWNS and NIGHT-RUNS. It will be 
observed that the average run of the rail mills fur- 
nishing statements was 254 ten-hour days, and of the 
cargo and rail mills 329 ten-hour days. The former 
class included the shortest run of all of the mills, 
and the latter class, so far as the data at hand indi- 
cates, included all of the night-runs. 

^ ' Obviously the average cost per thousand for Gen- 
eral Expense and Interest on Plant is increased by 
shut-downs and reduced by night-runs. A compari- 
son of costs should take this into consideration. De- 
preciation is affected similarly, unless based on the 
quantity of lumber cut. 

^'INCREASE and DECREASE of STOCK ON 
HAND. The cargo and rail mills that furnished 



245 

statements, cut approximately 20,000,000 feet more 
than they shipped. Since that portion of the year's 
cut would still have to be disposed of at the expense 
of subsequent operations, there should be added to 
the 1913 cost enough to cover handling, running 
through planers, etc., on the quantity of lumber un- 
shipped. How much of it would require surfacing 
is a question; but to cover surfacing, handling, etc., 
there probably should be added to the above figures 
say 5c per thousand on the total cut. This additional 
cost is of little importance in the composite figures ; 
but mills comparing their individual statements with 
them should make due allowance for the disposal of 
any considerable increase or decrease of their stock 
on hand in the year 1913. This applies, of course, to 
the rail mills also, though their combined net increase 
of stock was only 700,000 feet. All expenses, includ- 
ing yard and planers, have been divided by the whole 
cut in arriving at the average costs. 

/^SHINGLE CANTS. In cases where the saw- 
mill turned shingle cants over to a shingle mill, the 
displacement of lumber cut due to the shingle cants 
was determined as carefully as possible, based on in- 
formation supplied by the mill, and the displacement 
so found was added to the apparent lumber cut and 
the yard cost adjusted accordingly, for the composite 
statement. 

** SURFACING. In most cases it was necessary 
to estimate the percentage of output surfaced, by 
tests of the sales, owing to inadequate records or un- 
reliable planing mill reports. 

^; NUMBER of MEN and AVERAGE WAGES. 
This information cannot be reconciled with the other 
figures of the statement, owing to night shifts and 
adjustments previously referred to. 

^^COST FIGURES FROM ADDITIONAL 
MILLS. It seems probable that the Government, 
i. e. the Forest Service, will continue the work of 
obtaining costs. If it does, a finer classification of 
the mills — a larger number of composite statements 
— ^may be made possible. The rail mills might be di- 
vided into three classes with respect to their capaci- 
ties, say small, medium and large. The cargo-ship- 
ping mills also might be classified, separating from 
the others those that ship little or no lumber by rail. 



246 

Any composite statement, however, would have to 
guard against the exposure of any milPs figures 
without its consent. 

^^COST SEGREGATION. Following is a brief 
outline of the cost that is included in each item of 
the statement: 

''Boom Labor. Handling the logs after they are 
delivered in the mill boom, including delivery to the 
log haul. 

"Boom Repairs and Siqjplies. Labor and mate- 
rial used in repairs, supplies and small tools. AAHiere 
found, the use of boats in shifting logs has been in- 
cluded. 

"Mill Labor. Hauls logs into mill and places lum- 
ber onto trucks from sorting chain. Includes power 
and portion of watchman's time. Millwrights are 
excluded, they being included in Mill Repairs and 
Supplies. 

"Mill Repairs and Supplies. Millwrights and 
other repair labor. Repair material and all supplies. 
Includes power repairs and supplies. 

"Planer Labor. Takes lumber from trucks; sur- 
faces, grades, ties and reloads it on trucks. Includes 
planers in sawmill, and power labor. 

"Planer Repairs and Supplies. Labor and mate- 
rial for repairs ; supplies, including twine. Includes 
power repairs. 

"Kiln Labor. Loads kiln trucks, passes them 
through kiln, and unloads unless the kiln trucks are 
unloaded directly by the planer crew. 

"Kiln Repairs and Supplies. Labor and material 
used in repairs. Should also include cross-sticks used 
in piling lumber on trucks, but very fcAv mills take 
account of this expense. 

"Yard Labor. Includes labor of transportation, 
piling, handling in sheds, loading, operation of 
cranes, etc. Broadly speaking, it covers all handling 
outside of the mill, kiln and planers. 

"Yard Repairs and Supplies. Labor and material 
used for repair of yard, wharf, sheds, etc. Includes 
use of horses, without teamsters. 

"Salaries. Administrative and office salaries, less 
allowances for logging and other departments. 



247 

'^Sundry Expense. Covers office supplies, asso- 
ciation dues, legal expense, donations, incidental 
traveling expenses, etc. 

"Industrial Insurance. Covers premiums, assess- 
ments, payments to injured, etc., excluding lath mill. 

"Fire Insurance. On plant, lumber, etc., excluding 
residences, stores, etc. 

"Taxes. On real and personal property directly 
connected with the manufacture of lumber. Excludes 
taxes on logging equipment, residences, stores, etc. 

"Depreciation. Depreciation in this statement is 
practically a composite figure of the depreciation 
found on the mills' books. The basis in some in- 
stances is a percentage of the plant value, in others 
is a lump sum, and in still others is a rate per M feet 
of lumber cut. The question of a proper charge for 
depreciation in the composite statement is still open 
for consideration. 

"Repairs. It is probable that some repair labor 
has been included in the operating labor accounts, 
particularly in the yard where the time of men mak- 
ing repairs is not always separated from the oper- 
ating labor. In some instances it was found that 
planking, spikes, etc., used in yard repairing had not 
been charged on the books." 



APPENDIX B. 

SELLING COSTS. 

(1) EXHIBIT E. 

The following statement, subject to the notes appended, 
gives the results of a study by representatives of the 
Forest Service of the cost of delivering logs into Puget 
Sound. This work is part of the general study of the 
lumber industry of the Pacific Northwest which is being 
made by the departments of Agriculture and Commerce. 
Cooperation on the part of the industry, without which 
nothing of this kind could have been done, was court- 
eously extended and is heartily appreciated by the Forest 
Service. 



j 



248 

Average Cost of Delivering Logs from Tree to Puget 

Sound. 

(Embodying the figures from twenty camps.) Output 

(1913) and investment. | 

Per cent of total output (approximate) ... 75% 

Average yearns output per camp 45,000,000 ft. 

Average day's output per camp 200,000 ft. 

Average fixed investment $140,000 l 

Average working capital 35,000 k 

Average labor cost per M f t 3.09 

Cost per M Feet Log Scale 

1. Felling and bucking, labor $ .683 

2. Woods to car, labor 1.259 

3. Railroad (spur) and pole construction, 

labor .586 

4. Train crews, labor .206 

5. Dumping and rafting (includes contract 

work) .211 

6. Supplies and maintenance (labor and 

material) of railroad, dump and boom .117 

7. Supplies and maintenance (labor and 

material) of equipment, tools, build- 
ings, etc .307 

8. Fuel of locomotives, logging engines, 

shops, etc .239 

9. Wire rope .137 

10. Depreciation, equipment .024 

11. Depreciation main line railroad grade, 

boom and buildings .066 

12. Sealing ^ .049 

13. Eeturn of boom sticks .046 

14. Log freight .882 

15. General expense: 

Salaries and commissions $ .139 

Taxes 029 

Industrial insurance 096 

Sundry expense 076 .340 

Total average cost per M log scale $5,428 

This statement does not include the cost of stumpage, 
interest of any kind, discounts on logs sold, towage to 



249 

mill, or taxes on standing timber. It is intended here to 
include only the cost of transforming, transporting, and 
sorting the logs, taking them to the point of sale for 
straight loggers. Stnmpage and the taxes on timber will 
be handled in another section of the work. Discounts 
have been looked on as more closely related to realiza- 
tion than to cost of logging. Interest, whether on capital 
invested or on borrowed money, complicates the matter 
of cost and is most clearly considered as related to profit. 

The classification of costs given in the statement should 
not be looked on as ideal. It is in fact an expedient. 
In collecting the data the classification of the companies 
was followed of necessity ; later, in compiling the figures, 
they were thrown into the best groups that could be made. 
The main purpose was to arrive at an average total cost 
figure. This the segregated figures will serve to illumi- 
nate. 

The aim was to make the statement self-explanatory, 
but brief additional explanation seems to be required. 
This will be clearer for a brief statement of the trans- 
portation relations of the camps. 

The average haul by railroad to water is 23 miles, 
while 4 is the minimum. A few of the concerns have 
their own railroads reaching to point of delivery in the 
Sound, but most logs are hauled for a longer or shorter 
distance on common carrier railroads. Items 4, 11 and 
14, with others in less degree, are materially affected 
by this fact, are of doubtful value when taken separately, 
and comparison of any one camp 's cost with the average 
would have little point. 

The term ^^ Salaries'^ refers to the pay of Superin- 
tendents and that of bookkeepers, etc., at main offices de- 
tached from the woods. Following the practice of many 
camps, the pay of foremen, camp bookkeepers and scal- 
ers, timekeepers, and other general help is thrown pro 
rata into the cost of the major operations, falling and 
bucking spur construction, etc., and it is also included in 
total labor cost. 



250 

Item No. 2 includes the labor cost of yarding, roading, 
loading, moving engines, running out lines, building land- 
ings, pumping water, etc. 

Number 3 includes the cost of building spur railroads, 
and the small amount of pole roads employed in this 
region. In some cases all the railroad used is taken care 
of under this heading, or as in operating expense. This 
has the effect of increasing this item above the normal 
charge and decreasing Classification No. 11. Item 3 was 
a hard cost to take care of for the additional reason that 
in some cases the costs from year to year varied greatly 
due to varying conditions in the ^ [ shows, ' ' to the time the 
work was done, and the method of accounting. Where 
this condition was found it was necessary to use a figure 
representing the average cost for several years rather 
than the cost for one year. 

Number 5 includes the cost of sorting and rafting the 
logs, and some of the figures on which the cost was based 
include the cost of unloading. As a general thing, in 
fact, the cost of unloading is included. Over one-half 
of the amount given in the classification was paid to boom 
companies who do the work at a fixed rate per M feet, 
the balance representing the amount paid to labor by the 
logging or lumbering companies. 

(2) EXHIBIT F. 

Net Average Selling Prices. 
Reports from Six Cargo and Rail Mills. 

(Cost of selling, commissions, discounts, etc., deducted 
from gross selling prices, giving net figures here.) 

1910. 1911. 1912. 1913. 1914. 1915 (6 mos.) 
14.30 12.35 13.21 13.64 11.18 10.90 

Cost of logging (composite statement) $ 5.43 

Cost of manufacturing (composite statement) 5.06 

Towage estimated 25 

Total producing cost $10.74 



251 

Net Average Selling Prices. 
Reports from Six All-Rail Mills. 

(Cost of selling, commissions, discounts, etc., deducted 
from gross selling prices, giving net figures here.) 

1910. 1911. 1912. 1913. 1914. 1915 (6 mos.) 
14.45 12.78 13.69 12.73 11.29 10.06 

Cost of logging (composite statement) $ 5.43 

Cost of manufacturing (composite statement) 5.66 

Total producing cost $11.09 

Interest on plant, equipment, capital and stumpage and 
taxes on stumpage not included in above cost figures. 
Also no stumpage included. 

Note. — Since Exhibit F was filed Mr. Cary has advised 
us of the logging cost of '^ all-rail '' mills, as determined 
by him and the correct figure is used on pages 33 and 36 
of this brief, which makes a more correct statement than 
the combining of Puget Sound logging cost with ^^ all- 
rail" manufacturing cost. He has also determined that 
$5.13 should be the logging cost figure to be used in a 
combination with the ''rail and cargo" manufacturing 
cost, to take cars over the run where the log is manufac- 
tured. This figure is also used on pages 34 and 36 of 
this brief. 



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